The very first thing you need to understand before you go house-hunting is what you can really afford. This is determined by something called debt-to-income (DTI) ratio.
Basically, it’s what a mortgage company is going to look at to determine how much free cash you have in your budget (which can be used for a monthly mortgage payment).
Here are some fast facts about DTI:
- The Federal Housing Administration has a 43% DTI ratio for mortgage approval.
- This DTI number means that all new home expenses (including debt payments, HOA fees, taxes, insurance, etc.) can’t exceed 43% of your income.
- Not all lenders have the same standards: some may be more lenient and others may be more strict.
Example:
If you make $4,000 gross income a month: 4000 X 0.43 = 1720 That would mean $1,720 is as much as you should pay on mortgage payments
YOU DO NOT WANT TO STRETCH YOURSELF SO FAR THAT YOU CAN’T AFFORD TO PAY YOUR BILLS OR LIVE YOUR LIFE. THAT’S ALL THIS NUMBER IS MEANT TO DETERMINE.
