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
Request of a local government's planning body to alter the zoning requirements based on a justifiable reason. ...
An increase in land occurring from the withdrawal of a body of water. Normally, when reliction occurs, the increase in land area belongs to the individual having water rights in the area. ...
Trust beneficiary of an individual who is legally entitled to the property and financial benefits of a trust whose title is in another name. ...
Person serving as a property administrator for someone who is incompetent due to a mental or physical deficiency. ...
Amount by which the appraised value of property exceeds the debt balance. If property has a fair market value of $ 250,000 while the mortgage balance is $110,000, the owner's equity in the ...
income statement destroyed by a casualty such as a fire. This requires the reconstruction of the income statement based on source records, information, and documents. Income statement ...
Measure of central tendency that is a measure of the center of the data; also called an average. Mean and standard deviation are the two most widely used statistical measures that summarize ...
Authority given by a municipality to perform specified operations in a certain zoning area. Conditions are sometimes attached by the zoning group. An example is permission to have a ...
The rate, usually expressed annually, charged on money borrowed or lent. The interest rate may be variable or fixed. The higher the risk, the higher the interest rate. Mortgage interest ...
Have a question or comment?
We're here to help.