How Can I Figure Out My Debt-to-income Ratio?
To figure out where you stand on the debt-to-income ratio, you must first understand the meaning of the figure. Most lenders use the ratio 28/36.
The first number, which is also referred to as the front-end ratio, is the percentage of your gross monthly income that you could comfortably afford to spend on your housing payments or mortgage. This figure includes the money you spend on property taxes and insurance as well as the loan payment itself.
The second number, which can also be referred to as the back-end ratio, is the percentage of your gross monthly income that should be spent on all long-term monthly debts combined.
Use the following guidelines to find out where you stand:
- First, figure out your gross monthly income (your income before taxes). To do this, take your gross yearly income and divide it by 12.
- Multiply this figure by 28 percent (.28). The amount you come up with is TYPICALLY the amount you could comfortably afford to spend on your housing payments per month.
- Now, take your gross monthly income (your gross yearly income divided by 12) and multiply it by 36 percent (.36). The figure shown should be the TOTAL amount of money you spend on ALL LONG-TERM DEBTS COMBINED.
To get a more accurate mortgage estimate, tally up your monthly bills - which include car payments, credit cards, child support, alimony, etc. - and subtract this amount from the figure you just came up with. However much money is left over is the amount you should truly be spending on your housing payments per month.
Popular Real Estate Questions
Popular Real Estate Glossary Terms
Simply put, probate is a legal proceeding whereby the will of a deceased is tested for validity. The definition of probate is not known to most Americans. According to a Gallup survey, ...
Offering of new securities of a real estate company to the investing public, after registration requirements have been filed with the SEC. the securities are usually made available to the ...
Sales approach where the salesperson approaches individuals or telephones them with no previous contact seeking a sale of some product or service. The cold canvass often produces the ...
Metal hardware within the construction that is typically not visible, such as bolts, nails, and screws. ...
(1) Multiplying the average gross or net operating income of rental property by an appropriate factor to determine the value of the property. The capitalization rate depends on factors such ...
A provision that allows a mortgage recorded at a later date to take preference over an existing mortgage. ...
Undeniably, some terms can make your head spin if you dive into real estate for the first time. Today, we’re breaking down a key term: Realtor Associate. It sounds official, ...
Amenities significantly enhance our daily experiences across various environments, including homes, hotels, workplaces, and public spaces. But what exactly are amenities, and why do they ...
The reversionary lease definition is a lease that only starts at a later date. It is not a lease that starts only when another current lease ends. That is a lease of reversion. Not to be ...
Have a question or comment?
We're here to help.