Debt-to-Income Example
Front-end Ratio Yearly Gross Income = $45,000 Monthly income = $3,750 Housing expense ratio x .28 Allowable housing expense without recurring debt = $1,050
Back-end Ratio Yearly Gross Income = $45,000 Monthly income = $3,750 Housing expense ratio x .36 Allowable housing expense with recurring debt = $1,350
If you’re unable to come up with a down payment to obtain a loan close to what you’re paying for rent, then consider lowering your debts to decrease your back-end ratio to pre-qualify for a higher loan amount. However, depending on the lender, some have been known to approve back-end ratios as high as 60%. More aggressive lenders even offer 100% financing with no stated income, no ratio pre-determination, and no income verification mortgages.
Once you have an idea of how much additional debt you might qualify for, then you can experiment using one of the many mortgage rate calculators on the Internet by inserting different variables (e.g., expenses, credit card loan balances, down payments, etc.) to determine how much home you can afford.
