There are many people who want to apply for home loans but they don’t know that how much house they can afford. So in order to help those people in this article I have explained that how in just 4 steps you can calculate that how much house you can afford.

Step One – Calculating Your Monthly Income

When a loan officer prequalifies you, in order to figure your maximum mortgage amount he works backwards. You can do the same thing. The first step in this regard is that you have to determine your monthly income. It isn’t very easy. Only that income is counted by the Lenders which they can document through paperwork.

Calculation for Salaried Employees

It’s easy if you are a salaried employee, and you don’t earn any bonuses. Take out your paycheck. If you are paid twice a month, then you have to multiply by two.

Read the full story

Debt-to-income ratios are referred to as the guidelines that are used by mortgage lenders in order to determine your maximum mortgage amount. This is just a percentage of your monthly gross income (before taxes) that is used by you for paying your monthly debts.

Due to the reason that there are two calculations, so there is a “front” ratio and a “back” ratio. These two ratios are generally written in the following format: 33/38.

Front ratio

The front ratio is known as the percentage of your monthly gross income (before taxes) that is consumed in paying your housing costs. This housing cost includes principal, interest, taxes, insurance, mortgage insurance (when applicable) and homeowners association fees (when applicable).

Back ratio

The back ratio is also same as the front ratio, just that it also includes your monthly consumer debt.

Read the full story