Just because you can "afford" a house, doesn't mean you should buy it. I remember the very first time I was looking for homes, the lender told me that I could afford a home for $***,*** value. Just because (per the numbers), lenders consider that I could "afford" this home, doesn't mean that I HAVE to spend that much. Remember, this is the maximum that you can spend.
There are lots of variations in mortgage loan programs, but in general, you shouldn't borrow more than 28% of your total gross income. My personal recommendation is to have your top number closer to 25%, but I hope that you choose something with a ratio even lower.
How is the (front end) debt to income ratio calculated? Debt to Income Ratio is exactly what it sounds like. The front end includes housing only (principal, interest, taxes, and insurance) divided by your annual gross income.
Let’s look at a simple example of a Conventional Loan for better understanding, using 28%. The borrower has a gross monthly income of $7,083 ($85,000 annually). That means that your housing payment (PITI-principal, interest, taxes, and insurance) shouldn’t be more than $1,983 (28% of $7,083) at MAXIMUM. #finhacks #mortgagetips #mortgagecalculations
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