Multiply annual salary by
0.28
Divide by 12
Answer = monthly allowable housing expense
Calculate
your total debt-to-income, or back-end, ratio:
Multiply annual salary by
0.36
Divide by 12
Answer = monthly allowable debt-to-income ratio
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HOW THE RATIOS STACK UP
Conventional
Housing costs: 26-28 percent/monthly gross
income
Housing + debt costs: 33-36 percent/ monthly
gross income
FHA
Housing costs: 29 percent/monthly gross
income
Housing + debt costs: 41 percent/ monthly
gross income
Lenders include the cost of taxes and insurance
when calculating how much house you can afford. That means
you have to get a rough idea of what those things will cost
and include it in any estimate of a loan's or home's affordability.
See Tips
Home
mortgage standards in many instances are more relaxed than ever.
You're better off holding yourself to higher credit and underwriting
standards than your mortgage banker. Be your own banker, and
you'll avoid overextending your income.
You can ask your real estate agent
or call the tax office in the town where you are house hunting
and ask what the local tax rate is to get an estimate of what
you'll have to pay in taxes. As for insurance costs, you can
get an estimate from your insurance agent or a major insurance
company in the area where you are house hunting. Be sure to
inquire about special requirements for hazard insurance, such
as mandatory coverage for floods, earthquakes, or windstorms
in coastal areas.
Even if a lender doesn't
require it, a prudent borrower will: • Wait 12 months
after the most recent delinquent payment before applying for
a mortgage. • Build two months worth
of payments as an emergency cash reserve. • Not agree to a deal that
consumes every available dollar of income.
Home
mortgage standards in many instances are more relaxed than ever.
You're better off holding yourself to higher credit and underwriting
standards than your mortgage banker. Be your own banker, and
you'll avoid overextending your income.