Your debt to income ratio determines how much you can pay for a home. To obtain your debt to income ratio, you will first need to figure your gross monthly income. Your gross monthly income is the income you earn per month before taxes or any other deductions from your paycheck. If you are on salary, this amount is easy to determine but if you are paid by the hour you will use the following calculation:

Earnings per Hour X 40 X 52 / 12

Any overtime you work usually cannot be counted as part of your income unless it has been consistent for the past couple of years. Once you have determined your gross monthly income you will need to add up all your minimum monthly payments on the accounts that appear on your credit report. If you do not have your credit report, you can still add up the minimum monthly payments on your credit cards, car loan, any installment loans from banks, finance companies, etc. Do not include personal loans from friends and family, insurance payments, utilities or anything else you make payments on that do not usually show up on credit reports. Your gross monthly income vs your total monthly minimum debt payments is your debt to income ratio.

The debt to income calculation needs to be changed a bit to determine how big your mortgage payment can be. Depending on the lender and the type of loan you are applying for your total debt payments including your house payment (consisting of principle, interest, taxes and home insurance) must be no more than 42% to 55% of your gross monthly income. To calculate how big your mortgage payment can be, use the following calculation:

Gross Monthly Income X 55% (or 42%) – Minimum Monthly Debt Payments

As you can see from the above there are two ways to increase the amount you can afford to pay for a home and therefore how much house you can afford. You can (a) increase your income and (b) reduce your total monthly debt payments. CarePlus Financial’s American Home Buyer Service cannot really affect how much money you make. It can affect your total monthly debt payments. That is what we do. If you have so much debt that you cannot afford to purchase the kind of home you want, your program will contain a debt elimination component to improve your debt to income ratio.

We can help you with your debt to income ratio. Call 866-554-9906 or click here.