Debt & Income

EVALUATE YOUR DEBT LOAD AND ANALYZE YOUR MONTHLY BUDGET

After reviewing your credit it’s time to look at determining what you can afford to pay per month for your house.

Review your income relative to your debt and how you budget your money each month. What are your spending habits like and what are your financial goals? What are your other goals, including career goals, and where do you see yourself financially 5-10 years from now? Will your income be more or less?

Should you save money for a down payment first or work on paying off debt first?

DEBT-TO-INCOME RATIO

Debt-to-income ratio (DTI) is your gross monthly income relative to what your monthly mortgage payment and consumer debt will be. The two main kinds of DTI are known as the 'front-end' and 'back-end' and are expressed as a pair, using the notation x/y (such as 32/42).  The front-end ratio is the percentage of income that goes toward your mortgage payment only (including taxes and insurance). The back-end ratio is the percentage of your income that goes toward both your mortgage payment and consumer debt combined. Per automated underwriting, most back-end ratios cannot be higher than 45%. Feel free to use this home purchase calculator here to estimate what your monthly mortgage payments could be. Once you have a payment, determine if it is - combined with your consumer debt - more than 45% of your total gross combined (for 2 or more borrowers) monthly income.