Before purchasing a home, it’s important to determine the percentage of your income that you will be able to dedicate towards your mortgage. The first step is to assess your current income and outstanding debt and make an accurate but conservative estimate about the amount of house you can afford. Asking the question “What’s my mortgage payment going to be is a great place to start!”
If you’re using an online mortgage calculator, it’s likely operating on a front-end ratio. This means they’re measuring your gross income rather than net pay to determine what amount you can dedicate toward your mortgage. You’ll often find that online mortgage calculators use 28 percent of your gross income. However, other things to be considered besides the principal and interest on your mortgage payment include property taxes, mortgage insurance and home insurance.
A back-end ratio may be more beneficial for helping to determine a potential mortgage payment if you are carrying a significant amount of debt. The back-end ratio considers your current ongoing debts such as student loans, credit cards, child support, mortgage payments, etc. when determining your potential mortgage payment. This ratio has a standard 36 percent debt-to-income ratio in the mortgage industry.
Percent of Income
When assessing the amount of your income that will be used toward your mortgage, the mortgage product, your credit and a down payment are influential factors. Begin by determining your ideal debt-to-income ratio. Your total debt-to-income ratio includes your housing payment (mortgage, homeowners insurance, property taxes) and your existing debts.
We highly recommend that your mortgage payment not exceed 31 percent of your monthly gross income. As far as your total monthly payment obligations (mortgage, student and car loans, child support, etc.), these should not exceed 43 percent of your monthly earnings.
VA Loan Benefits
For home buyers qualified for a VA loan, no down payment in necessary. For more information on qualifying for a VA loan or to get pre approved, contact Midwest VA Loans today.