There’s one question slowing everyone from starting the home buying process. It’s a daunting one. The famous four words are, “What can I afford?” Many variables are plugged into the mortgage formula—loan types, rates, income, monthly payments, etc.
What's a Debt-to-Income Ratio?
Your front-end ratio is a comparison of your gross monthly income and your projected housing expenses:
HOA Dues and/or PMI
The Front End Ratio should not exceed 38 to 45% of your gross monthly income. For example, if your average monthly income is $5,000, your total mortgage, taxes and insurance payment should be between $1,900 and $2,250.
Your back end ratio will include your front end payment plus minimum monthly payments you're obligated to pay that are found on your credit report.
Monthly Car Payments
Min Credit Card Payments
Child Support and more
The Back End Ratio should not exceed 45 to 55% of your gross monthly income. For example, if your average monthly income is $5,000, your total back end, which includes your mortgage payment, should be between $2,250 and $2,750.
What Can I Afford?
Get started by using our True Home Affordability Calculator. It's called 'True' because it's the only calculator that ensures you're fully prepared to take on the responsibility of owning a home.