Annual Income Wages/Salary $: annual earnings from wages or salary. Additional Income $: additional annual earnings from things such as rental property.
Monthly Recurring Debt
About Recurring Debt
Debt considered recurring by lenders includes payments for obligations such as a car, minimum credit card payments, student loans, mortgage payments and child support payments. If you pay off your entire balance on credit cards each month, these payments don’t count as recurring debt. If you bought a set of kitchen appliances and are paying that off monthly, that’s considered recurring debt because you can’t easily cancel your payments. Conversely, if you subscribe to a magazine or have an Internet or phone contract, those obligations are not considered recurring debt because there is no fixed debt amount you are paying down and you can cancel your contract.
Improve Your Purchasing Power
While having some recurring debt can improve your credit score, too much can hurt you. Eliminating some of your recurring debt may improve not only your credit score, but your ability to qualify for a mortgage as well. Consult your mortgage broker about which debt you may want to pay off first.
Car payments $: monthly payment for all cars. Credit card payments $: monthly minimum payment total for all credit cards. Student loan payments $: monthly payment for all student loans. Other payments $: other monthly recurring debt such as child support or another mortgage.
Property Purchase price $: the amount you intend to pay for the property (contract price). Down payment %: percentage of the purchase price. If you are purchasing a house for $200,000 and intend to put a down payment of $40,000, enter 20 for down payment. Interest rate %: check with your lender to see what interest rate you qualify for. Mortgage term (years): usually 15 or 30 but other options may be available. Taxes and Insurance $: these numbers can vary from region to region and from home to home. Consult with your real estate agent or mortgage broker.
Estimate your monthly payment using the 28/36 Rule
About the 28/36 Rule
The 28/36 Rule is a "rule of thumb" used by lenders stating that a mortgage applicant’s debt-to-income ratio should be no more than 28% on the front end and no more than 36% on the back end.
Front end Ratio refers to the percentage of your gross monthly income (before tax) used to make your house payment (PITI).
ex) Housing Payment ($2,000) ÷ Monthly Income ($8,000) = 0.25 (25%)
Back end Ratio refers to the percentage of your gross monthly income (before tax) against your total monthly recurring debt. This includes your house payment along with payments like credit card payments, car payments, student loan payments, child support, etc.
ex) Total recurring debt ($2,880) ÷ Monthly Income ($8,000) = 0.36 (36%)
The amount you can borrow includes principal + interest + taxes + insurance based upon the numbers entered above. Interest rates can vary based upon your credit and the amount of down payment. If your down payment is less than 20% of the sales price, you may have to pay Private Mortgage Insurance (PMI). With FHA loans, you will have to pay Mortgage Insurance Premium (MIP). Consult with your lender for details.