Maximum Mortgage
Affordability Guidelines

How much home can you afford?

Knowing how much house you can afford is the first step before you can set off on the goal off homeownership. To determine your maximum mortgage amount, lenders use guidelines called debt-to-income ratios. This is simply the percentage of your monthly gross income (before taxes) that is used to pay your monthly debts.

There are two separate factors that lenders use when making calculations. Because there are two calculations, there is a "front" ratio and a "back" ratio and they are generally written in the following format: 33/38.

The front ratio is the percentage of your monthly gross income (before taxes) that is used to pay your housing costs, including principal, interest, taxes, insurance, mortgage insurance (when applicable) and homeowners association fees (when applicable).

The back ratio is the same thing, only it also includes your monthly consumer debt. Your consumer debt is the items that you have already charged. Consumer debt can be car payments, credit card debt, installment loans, and similar related expenses. A common guideline for debt-to-income ratios is 33/38.

So, what percentage of your debt is allocated to your home as opposed to other obligations? A borrower's housing costs consume thirty-three percent of their monthly income. Add their monthly consumer debt to the housing costs, and it should take no more than thirty-eight percent of their monthly income to meet those obligations.

These guidelines are definately flexible and vary from lender to lender. If you make a small down payment, the guidelines are more rigid. If you have marginal credit, the guidelines are more rigid. If you make a larger down payment or have very good credit, the guidelines are less rigid. The guidelines also vary according to loan program. FHA guidelines state that a 29/41 qualifying ratio is acceptable. VA guidelines do not have a front ratio at all, but the guideline for the back ratio is 41.

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