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
Same as term appraisal: Valuation assessment of real property by an expert third party for the following purposes: developing a realistic market price. setting a market value at the time ...
The modified accrual method is defined as an alternative accounting method that combines the two basic methods of accounting, the accrual method and the cash method. While the accrual ...
Representative house, apartment, or cooperative used as a sales tool to show how the actual unit bought will probably appear in design and construction. An example is a model apartment. ...
Expert in real estate who has an education in real estate appraisal as well as having significant professional experience. A recognized license may be obtained from the Member Appraisal ...
Transfer of both real and personal property. An example is the sale of a home with personal belongings. Putting together a group of property to be sold together, perhaps at a discount ...
Local regulation on how real property may be used in a particular locality. The county may establish different zoning classifications and restrictions. If the ordinance is violated, ...
Property having an easement right through another adjoining property. The property through which the easement passes is considered to have the servant tenement. ...
(1) That portion of exposed beach formed by waves depositing sand as they dissipate on the beach. The size of the berm commonly varies with the season. In the summer, the waves move sand ...
fee to use a bridge or tunnel. Fee assessed to use someone else's property. ...
Have a question or comment?
We're here to help.