What Can You Afford?

To determine how much of a home you can buy or loan amount you can afford, lenders will consider your credit history, your monthly gross income and how much cash you'll be able to accumulate for a down payment. So how much house can you afford? To know that, you need to understand a concept called "debt-to-income" ratios.

The standard debt-to-income ratios are:

• The housing expense, or front-end ratio, shows how much of your gross (pretax) monthly income would go toward the mortgage payment. As a general guideline, your monthly mortgage payment, including principal, interest, real estate taxes and homeowners insurance, should not exceed 28% of your gross monthly income (this a FNMA standard, but many lenders have become more flexible). To calculate your housing expense, multiply your annual salary by 0.28, then divide by 12 (months). The answer is your maximum housing expense.

• The total debt-to-income, or back-end ratio, shows how much of your gross income would go toward your total debt obligations, including mortgage, car and student loans, child support and alimony, credit card bills and condo fees. In general, your total monthly debt obligation should not exceed 36% of your gross income (this a FNMA standard, but many lenders have become more flexible). To calculate your debt-to-income ratio, multiply your annual salary by 0.36, then divide by 12 (months). This is your maximum allowable debt-to-income ratio.

To prequalify yourself, simply complete the fields below and then click Calculate Now. To view the different results of your financing calculations, simply click on the various tabs. To email yourself a copy of these results, just click the Receive this Detailed Analysis link. Are you ready to get Pre-Approved?  Compare Today's Rates.