When looking for your first home, it’s important to determine how much house you can afford. A lender will determine your qualifying ratio, which is your total housing payment plus total other monthly obligations, then divided by your gross monthly income. Also referred to as your “debt to income ratio,” it should be less than 43%, but can go as high as 60% based on a borrower’s income and credit profile.

Below is an example of a total housing payment (PITI) and monthly obligations to consider:

• Purchase price $375,000
• Loan amount $300,000
• Mortgage payment (principal & interest) at 4.25% = $1,476
• Monthly taxes est. $391/month (annual estimated @ 1.25% of purchase price)
• Monthly homeowner’s insurance est. $63/month (annual estimated @ .25% of loan amount)

Total housing payment (PITI)= $1,930/month.

Your total housing payment may also include:

• Homeowner’s association dues if buying a condo or in a planned unit development
Mortgage insurance if your down payment is less than 20%

Total other monthly obligations include:

• Auto loans and leases
• Installment loans
• Student loans even if in deferred status (rare exceptions may apply)
• Credit card payments
• Court ordered alimony and/or child support payments
• Business debts if not paid by business account for 12 months (for self employed)
• Open/monthly accounts requiring payment in full each month- can omit in most cases

If your gross monthly income is $6,000, your housing is $1,930 with $600 in other monthly obligations $1930 + $600/$6000 = 42% back end ratio.

Visit our Advanced Affordability Calculator to help determine what you can afford. Once you have this figured out, you’ll be able to determine how much money you’ll need to save.

We can use the (AUS) Automated Underwriting System to play with different scenarios to see how high the AUS will allow your debt ratio to be approved. It takes into account other factors such as FICO score, length of employment, assets, credit usage, etc.

Scot Presley - Presley Financial