Debt to Income Ratios

You need to review your personal finances prior to applying for a home loan. If you have a good handle on how much your earn vs. how much you owe, you will have a better understanding of how much a lender will allow you to borrow.

Income:

What is your gross monthly income? 

Figure your average income for the past 2 years. Locate your tax returns for the past 2 years. In addition to your earned sources of income, you may use unearned sources of income such as alimony or lottery payoffs. And if you own income-producing assets such as real estate or stocks, the income from those can be estimated and used in this calculation. If you have questions about your specific situation, any good loan officer can review your documents.

Debt:

Include all of your monthly debt obligations; credit cards, installment loans, car loans, personal debts or any other ongoing monthly obligation like alimony or child support.  

Mortgage Lenders do not want you to take out a loan that will overload your ability to repay everybody you owe. 

Formulation: 

A common average guideline for debt-to-income ratios is 33/38. A borrower's housing costs take up 33% of their monthly income. Once you add your monthly consumer debt, it should take no more than 38% of their monthly income to meet those obligations.

A lender takes into account many factors that reflect the financial condition of a home buyer. many lenders have different debt to income requirements.  Being prepared by knowing where your income and expenses stand will simplify the application process for you and your lender.