Tuesday, May 1, 2007

Do you know your housing ratio?

This is very beneficial information to have when deciding how much to spend on a new house or determining whether to refinance. This is also one of the many factors that lenders review when deciding whether or not to lend you money.

Your housing ratio simply measures the amount of your income that you spend on a house payment(s). To calculate the housing ratio, take your total gross annual income and divide it by 12 to get your gross monthly income. Then divide that number by your total house payment. Make sure you include taxes, insurance and any 2nd mortgage payments.

Fannie Mae recommends that you don’t spend more than 28% of your gross monthly income on a house payment. Again, this is a rule of thumb and there are many other factors that a lender takes into consideration including how much you spend on other debt per month and your credit scores before determining whether you are qualified for a loan.

But in general it is a good ideal to not go much higher than 28%. Studies have shown the higher the housing ratio is; the harder it can be for people to make their payments on time.

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