Filed Under: Budgeting
Knowing how much fund you can borrow is required to get the best approval on your loan. Banks will decide your loan application based on how much you’ll be able to repay your mortgage loan monthly. They estimate your payment by looking at your income, your available cash, your debt, and your credit history.
When you have known how much the banks will lend you, it didn’t mean you take that all amount to insert in your debt. You should take no more than 28% of your net income (after taxes) for your total payment to get breath for a comfortable lifestyle, funding for your retirement, going vacation, or even going out to eat. You don’t forget you still need the other funds of home ownership, such as repairs, maintenance, and higher utility bills.
There are two debt-to-income ratios that you can calculate to estimate how much total payments will banks approved.
First, take your annual salary and multiply it by 28%, then divide it by 12. This is the maximum allowable amount of your total monthly debt payments (including principal, interest, and escrow payments). This is called the front-end ratio. This ratio used for your mortgage loan payments.
Second, take your annual salary and multiply it by 36%, then divide it by 12. This is the maximum allowable amount of your total monthly debt payments. This is called your back-end ratio.
Banks will estimate base on how much of your gross income is required to pay all of your debts combined. That is including the mortgage as well as car payments, credit card payments, student loans, and child support and alimony payments.