San Mateo-Foster City Real Estate News

Lenders today generally use two standard guidelines to determine how much of a monthly mortgage payment you can afford and what your debt ratio is.  The first guideline is that your household should spend no more than 28 percent of its gross monthly income (before taxes) on monthly housing expenses, including: mortgage principal and interest, hazard insurance, real estate taxes and private mortgage insurance, if applicable. However, some lenders will stretch that figure to 33 percent or more in our high cost area.  The second guideline is that your monthly household expenses (as outlined above) plus other debt should not exceed 36 percent of your gross monthly income, although some lenders will stretch this to 38 to 40 percent. 

How can one estimate how much of a monthly mortgage payment they can afford? It's really not hard if you use my calculation table below.  This is a great exercise to take yourself through before meeting with a lender so you have a pretty good idea of where you stand financially.  Along with this exercise and your FICO numbers you'll be prepared for a reality check on rates.  Remember the higher your FICO the lower your interest rate.  Go get your pencil and begin!

First, calculate your monthly household income, including that of your co-borrower, if you have one. In addition to regular wages, don’t forget to include overtime, bonuses, commissions, dividends/interest, alimony/child support and any other income.
    A. Your Maximum Allowable Housing Expense:  After you total your gross monthly income, multiply it by 28 percent to get         your maximum allowable housing expense.
        1. Gross Monthly Income  $                    .
        2. Multiply By 28%                           x  28%
        3. Your Maximum Allowable Monthly Housing Expense  $                       .
     

    B. Your Debt:  Now, determine your debt. Credit cards, car payments, student loans, alimony or child support should be                 included here, as should any debt incurred by your co-borrower, if you have one.
        1. Installment and revolving debts (credit cards)    $
        2. Car Loans    $                .
        3. Student Loans    $                 .
        4. Alimony/Child Support    $               .
        5. Other Long-Term Monthly Debts    $                  .
                                         
    Total Debt     $                    .
     

Now that you know this number, what can you afford relative to your overall debt?
Most lenders generally will allow you to allocate up to 36 percent of your household income to overall debt, although some lenders will allow you to go up to 40 percent under the right circumstances, including a larger down payment. You can calculate your maximum allowable combined housing and monthly debt in the space below:
        1. Your Total Gross Monthly Income    $                   .
        2. Multiply By 36%                           x  36%
        3. Your Maximum Allowable Combined Housing and Monthly Debt    $                   .
     
This is a time to be brutally honest because you future lender will become intimately aware of all of your finaces.  Bring this along to your appointment and see how he/she comes up with their numbers, just for fun.

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