How Much Home Can You Afford?

In order for you to determine how much you can afford for a home, you first need to understand the standard debt-to-income ratio. Lenders call this the Front & Back ratio. There is an easy way to figure out how much you can afford, which will give you an idea for a quick estimate.

 $_____ (your monthly rent) x 200 = $_____ (this is about how much you can afford)

Front-end ratio: The housing expense, or front-end ratio, shows how much of your gross (pre-taxed) monthly income would go towards your mortgage payment. The result is your maximum housing expense ratio. 

Back-end ratio: The total debt-to-income, or back-end ratio, shows how much of your gross income would go toward all of your debt obligations, including mortgage, car loans, child support and alimony, credit card bills, student loans and condominium fees. In general, your total monthly debt obligation should not exceed 36 percent of your gross income. To calculate your debt-to-income ratio, multiply your annual salary by 0.36, then divide by 12 (months). The result is your maximum allowable debt-to-income ratio. 

Now you can try this Affordability Calculator to determine your own scenario very easily.