| By understanding your debt to income ratio (front end | | | | know) |
| and back end ratios) you can easily anticipate how | | | | Also determine what your annual homeowners |
| much money a lender will let you borrow. More | | | | insurance will be. (Estimate if you don't know) |
| importantly, knowing how to analyze your debt to | | | | Loan Terms |
| income ratio can help you make the necessary | | | | Next, determine the terms of the loan you anticipate |
| financial changes to secure a better mortgage loan. To | | | | being approved for. For example a 6% loan / fixed |
| find this out all you need is a good online mortgage | | | | rate mortgage over 30 years. |
| calculator. | | | | Hypothetical debt to income scenario |
| For example, did you know that if you and your | | | | Total gross annual income (both spouses): $90,000 |
| spouse each makes 45k annually, you may qualify for | | | | Total monthly debt (auto payments, credit card etc) |
| a $287,000 mortgage? Maybe even over $300,000? | | | | $700 |
| You'd be amazed at what you may be able to afford. | | | | Annual taxes: $2800 |
| Of course credit score is a big part of the equation but | | | | Homeowners ins: $500 |
| we'll assume in this article your credit is good. | | | | Interest rate: 6% |
| If your planning on a buying a home, understanding | | | | Length of loan: 30 yr |
| your debt to income ratio is critical in planning - it tells | | | | Entering this data into a good online mortgage |
| the lender that after paying all your bills you have | | | | calculator you'll see the result: the maximum loan |
| enough money to be comfortable and enjoy life, in | | | | amount will be about $287,715.or $1,725. Monthly PITI. |
| other words your not "house poor" ( big mortgage | | | | This is realistic figure based on a 36% back end ratio. |
| payment and no left over cash at the end of the | | | | What if you had less debt, can you get a larger loan? |
| month.) | | | | Say you had no car payment and which brought your |
| Let's look at the components of debt to income ratio | | | | monthly debt down to $250 (a credit card payment |
| and what numbers to plug into the mortgage calculator: | | | | and a student loan) |
| Income | | | | Your new maximum loan amount will be $362,771 or |
| First, take your gross annual income plus your spouses | | | | $2175 towards PITI. This big jump in potential buying |
| (if you're married) and add it together. Next add any | | | | power is achieved without increasing your income at all |
| income from outside your jobs: interest income or child | | | | - only reducing your debt! |
| support perhaps. | | | | Why not experiment with a good online mortgage |
| Expenses | | | | calculator? The web site at the bottom of the page |
| Next, add up your monthly ongoing bills. This includes: | | | | has a great free mortgage calculator which gives you |
| car payments, credit card bills, monthly medical bills, | | | | all the above data to easily analyze your home buying |
| student loans etc.... | | | | situation. You'll be surprised at what you may be able |
| Next, determine your annual property taxes in the | | | | to afford. |
| neighborhood you plan on living in. (Estimate if you don't | | | | |