How Much Can I Afford?

It is wise to sit down and determine your monthly debt in comparison to income. You can do this by making a list of all of your monthly recurring bills, including outstanding long-term debt and your income. Mortgage companies will use these details to calculate your income-to-debt ratio. Fannie Mae has established standard requirements for conventional mortgages. The first requirement is that monthly mortgage principal and interest payments (P&I), plus insurance and property taxes, cannot exceed 28% of the buyer’s gross monthly income (some exceptions may apply to increase this limit to 33%). The second requirement limits total monthly debt payments (housing, credit cards, car payments, etc.) to 36% of gross monthly income. In addition to these requirements, you may have to pay 10% to 20% down on the total purchase price to qualify for a conventional mortgage. Of course there are many types of mortgages and each one has its own set of qualifications for acceptance.