When you are involved in refinancing an existing mortgage determining how much you can actually afford to pay towards your home every month is a very important step. Not only will this give you a loan amount to stick to but it will also eliminate any last minute loan problems due to insufficient income levels.
Finding Out How Much You Can Afford
How much can i afford for a house payment is a question that clients often ask their mortgage brokers when they are applying for a new mortgage. Although it may seem like a mystery its actually pretty simple to figure out.
How much home you can afford to pay for is actually determined by an easy mathematical calculation know as debt to income ratio, or DTI as it is referred to in the mortgage industry. Your debt ratio is a percentage of your gross (pre tax) income as compared to your monthly expenses. the calculation is that you divide your monthly bills into your gross income and that is your debt ratio. So if you have 1000 in bills and make 3000 a month your DTI would be 1000/3000=.333 or 33%
A good debt ratio is around 42%. At this level you are still left with enough money to live comfortably. Although some lenders will take you with ratios up to and sometimes over 50% it is advised that you refrain from borrowing up to this limit as it makes daily living a little harder!
Not all your expense are used in the calculation of your debt ratio. The ones that are used are your revolving debts like mortgage payments, property tax payments, credit card payments, any loans you have and store cards. What is not included is daily living expenses like food, gas and other items like your power or cable bill. So make sure you calculate these expenses in so you do not come up short every month.
Learn how your Income Is Calculated by mortgage lenders so you can accurately determine your debt ratio at http://www.mkemortgage.net