A mortgage lender can help you pre-qualify for a loan
and give you an estimate payment plan that you can afford. However, a real estate professional
can give you a broad overview of the real estate purchase transaction and everything involved in its process. Hiring a real estate agent can help your streamline what you can afford, which areas you can afford, and how to protect yourself when purchasing property.
WHAT IS DEBT TO INCOME RATIO?
Every mortgage lending agency has its own debt to income or DTI limit. However, all leading lending agencies conform to Federal Housing Administration (FHA) limits. The front-end DTI ratio for an FHA loan is 31% and the back-end DTI ratio is 43%.
Front-end-ratio is calculated by dividing the housing related costs with your gross monthly income. The front-end DTI ratio indicates a reasonable payment that you can afford. Front-end-ratio is the percentage of your gross monthly income that you will spend on the mortgage payment, property taxes, insurance and interest. You can always decide your own front-end ratio to give yourself a comfortable payment level catering your financial situation.
Back-end-ratio is calculated by dividing all housing related costs plus all recurring monthly debts with your gross monthly income. The back-end ratio is higher; for an FHA loan, it is 43%. Back-end-ratio will take into account all recurring debts, including car loans, student loan payments, credit card payments, child support obligations and any other recurring debts you have.
Essentially, with this information you can calculate how much of a mortgage payment you qualify for, which gives you an idea what home sale price you can afford.