Ok, so in the above video I mentioned a rule that most mortgage lenders like to use during the process of a pre-approval (the rule of 28/36). Lenders typically want no more than 28% of your gross monthly income to go toward your housing expenses, including your mortgage payment, property taxes, and insurance. Once you add in monthly payments on other debt, the total shouldn’t exceed 36% of your gross income.
If your debt-to-income ratio exceeds these limits on a house you’re considering buying, then you may not be able to get a loan, or you may have to pay a higher interest rate or fees in order to get the loan.
Let’s do a quick calculation. Lets say you and your spouse have a combined gross monthly income of $10,000.
- $10,000 x 0.28 = $2,800
- $10,000 x 0.36 = $3,600
This means that your mortgage, taxes and insurance payments can’t exceed $2,800 per month, and your total monthly debt payments should be no more than $3,600, mortgage payment included.
Stay tuned for my next video that explains step 2 of the home buying process.