Household Income Vs. Mortgage Amount

When considering your mortgage application, one of the factors lenders will look at is how your monthly income compares to your mortgage expenses.

Mortgage Expenses

Lenders look at not only your mortgage monthly payment but also any private mortgage insurance (PMI) payments, insurance and property taxes.

Income

Lenders use your pre-tax monthly income when determining your debt-to-income ratios.

Front-End Ratio

The front-end ratio divides your mortgage expenses by your income. Most lenders want the front-end ratio to be below 28 percent.

Back-End Ratio

The back-end ratio divides your monthly debt payments, including your mortgage expenses as well as other debts like car loans or student loans, by your income. Most lenders prefer to see a back-end ratio below 36 percent.

Considerations

Lenders will also look at your credit score, employment history and other factors. If you have otherwise excellent credentials, lenders may be willing to go slightly higher than 28 and 36 percent on your debt-to-income ratios.

References

• Bankrate: How Much House Can You Afford to Purchase?
• Bankrate: Debt-to-Income Ratio Important as Credit Score