Debt-to-Income Ratio #homeloans #homebuyer #interestrates #fhaloan #firsttimehomebuyer #closingcosts

When lenders calculate the debt to income ratio, they're calculating the person's monthly budget to find out how much of a house they can afford. The best way to go through it is with an example. So let's say the person makes $5,000 a month gross. Generally speaking, they can spend up to about 50% of that. Sure, different loan types have different ranges, but 50%, easy math. So 50% of 5,000 is 2,500. Let's say they have a $500 car payment. You then take that $500 out of the 2,500. Now you're down to $2,000 left. And let's say they have $50,000 in deferred student loans. You can generally do a half payment on that. So that'd be 250 bucks a month. So now the 2000s down to 1750. That's how much money in this example that that person has left over for a mortgage payment. So then the lender sees how much of a house can they jam into that mortgage payment. One key ingredient is having low rates like the gallon mortgages. And we can squeeze more of a house into that 1750. But that's where the limits come from on the debt to income ratio.