Two ratios are calculated by mortgage lenders to determine a buyer’s maximum loan amount:1) the front ratio and, 2) the back ratio.
Front Ratio: The total mortgage payment including principal, interest, taxes and insurance (PITI) as well as any condominium or homeowner association fees divided by your total GROSS income. Traditionally, this ratio must be below 30% Example: With a gross income of $5000 per month, a total mortgage payment (PITI) of $1350, the front ratio would be 27%.
Back Ratio: The total mortgage payment PLUS any car payments, credit card and any other loan payments including student loans divided by your total GROSS income. Traditionally this must be below 40%. Example: With a gross income of $5000 per month, a total mortgage payment of $1350, a car payment of $325, 1 credit card payment of $60 and 1 student loan payment of $150 for a total of $1885 with a back ratio of 38%.
For more information or to set up an appointment call Julie at (703)765-0300.If you need help calculating your ratios, please contact Julie Nesbitt at 703 765 0300.
Whether you are buying your first home, moving up to your dream home, or downsizing your home and your life after the kids have gone, purchasing a home carries considerable financial and psychological weight. For this reason, understanding the ground rules for success when buying a home is important.
When buying a home, making a wise decision can greatly enhance the overall value of the investment; however, making the wrong decision can have devastating and long lasting effects. Learning all you can about the world of of home buying and mortgages is necessary before you set out to purchase your dream home.
Plenty of web sites are available to help first time home buyers, but one-on-one learning is the best way to learn, and the Realtors here at Nesbitt Realty can provide you with that experience.
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