How Much Can You Afford to Pay for a Home?

In order to determine the maximum mortgage, lenders use debt to income ratios. That is the percentage of your monthly gross income used to pay monthly debts.

A typical rule for debt-to-income ratios is around 33/38. For example, a borrower’s housing costs might expend 33 percent of their monthly income, than add other monthly debt to the housing costs, and it should be no more than 38 percent of monthly income.

These are just general guidelines and are a little flexible, depending on the lending institution. The smaller the down-payment, the more rigid the guidelines. If credit history is marginal, the guidelines are more rigid. If you make a larger down-payment or have great credit, the guidelines are less rigid. The guidelines will also differ depending on the loan program. For example, FHA guidelines state that a 29/41 qualifying ratio is acceptable. VA guidelines also differ.

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