If you have asked yourself “Exactly how much home can I afford on my income?” please continue reading. This question will be determined by a few factors.
Your gross monthly income before taxes is used to calculate your debt-to-income ratio (often called DTI). To calculate the DTI on a typical FHA Loan, simply take your gross monthly income and multiply by 31%.
Up to 31% of gross income can go towards house payment. House payment + other credit debts (car payments, student loan payments, minimum credit card and installment payments alimony and child support payments) cannot exceed 43% of gross monthly income.
Rent, food, utilities and medical, life and other insurance will not be counted towards 31/43 ratios.
If you want to sell a home you currently own in order to invest in a new home, your current house payment should not be included as it will be going away.
If your gross income before taxes = $3,000 x 31% = $930 income allowed to go towards your total house payment. House and other credit related payments cannot exceed $3,000 x 43% = $1,290
$930 house payment + $350 other payments = $1,280 (under 43% of income) Note: Each application stands on its own, in many cases borrowers are getting DTI ratios approved as high as 47% of gross income on just the house payment and as high as 57% of the total of debts to gross income.
47% DTI Example: $3000 x 47% = $1410
Are you ready to move forward with a purchase or refinance? Please give us a call at 888-810-1459 and let us help you secure financing for the purchase of a new home or save you money on the refinance of your existing home. Be sure to ask your loan officer about our closing costs incentives and our low rate guarantee!
Disclaimer: The information contained in this article has been prepared by an independent third party and is distributed to consumers for educational purposes only. The information is considered reliable but not guaranteed to be accurate. The opinions expressed in this article do not represent the opinions of Skyline Home Loans. Please consult with a licensed loan officer for expert advice regarding financing or refinancing a home.