This includes housing costs, and other debts such as car payments, personal loans, and credit card payments. Maximum monthly payment is calculated by taking the lower of these two calculations: Monthly Income X GDSR = monthly PITH. Monthly Income X TDSR - Other loan payments = monthly PITH.
Maximum Loan Amount Formula
Starting with the loan to value (LTV) ratio, the maximum loan amount is the maximum LTV ratio multiplied by the property value. The debt service coverage ratio (DSCR) is distinct because the lender's constraint is set based on a minimum DSCR ratio.
With a FHA loan, your debt-to-income (DTI) limits are typically based on a 31/43 rule of affordability. This means your monthly payments should be no more than 31% of your pre-tax income, and your monthly debts should be less than 43% of your pre-tax income.
M ^ = B P ^ N = B 12 T ( 1 + R T 2 + ( R T ) 2 12 ) . For our running example with a 30-year loan with 5% interest and principal of $360,000, this formula says that my monthly payment will be approximately $1,937.50. An online mortgage calculator gives us the exact answer of $1,932.56 .
Monthly Payment = (P × r) ∕ n
Again, “P” represents your principal amount, and “r” is your APR. However, “n” in this equation is the number of payments you'll make over a year. Now for an example. Let's say you get an interest-only personal loan for $10,000 with an APR of 3.5% and a 60-month repayment term.
No more than 30% to 32% of your gross annual income should go to mortgage expenses, such as principal, interest, property taxes, heating costs and condo fees. Total Debt Service (TDS) Ratio.
Bottom line. Like any conventional wisdom, the 28/36 rule is only a guideline, not a decree. It can help determine how much of a house you can afford, but everyone's circumstances are different and lenders consider a variety of factors.
To afford an $800,000 house, you typically need an annual income between $200,000 to $260,000, depending on your financial situation, down payment, credit score, and current market conditions. However, this is a general range, and your specific circumstances will determine the exact income required.
The Bottom Line. On a $70,000 salary using a 50% DTI, you could potentially afford a house worth between $200,000 to $250,000, depending on your specific financial situation.
LOAN TO PURCHASE PRICE (LTPP)
LTPP is a metric used by hard money lenders to determine the maximum loan amount based on the purchase price of the property. The LTPP ratio is calculated by dividing the loan amount by the purchase price, expressed as a percentage.
About jumbo loans
A loan is considered jumbo if the amount of the mortgage exceeds loan-servicing limits set by Fannie Mae and Freddie Mac — currently $806,500 for a single-family home in all states (except Hawaii and Alaska and a few federally designated high-cost markets, where the limit is $1,209,750).
The 30% rule advises consumers spend no more than 30% of their monthly income on their mortgage or rent payments, leaving wiggle room in case of unexpected expenses, job loss, family planning, and other goals.
For example, if your interest rate is 6 percent, you would divide 0.06 by 12 to get a monthly rate of 0.005. You would then multiply this number by the amount of your loan to calculate your loan payment. If your loan amount is $100,000, you would multiply $100,000 by 0.005 for a monthly payment of $500.
The 28% rule
To gauge how much you can afford using this rule, multiply your monthly gross income by 28%. For example, if you make $10,000 every month, multiply $10,000 by 0.28 to get $2,800. Using these figures, your monthly mortgage payment should be no more than $2,800.
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
"House poor" is a term used to describe a person who spends a large proportion of their total income on homeownership, including mortgage payments, property taxes, maintenance, and utilities.
You should aim to keep housing expenses below 28% of your monthly gross income. If you have additional debts, your housing expenses and those debts should not exceed 36% of your monthly gross income.
With a $90,000 annual salary, a 35% DTI ratio, and a 5% down payment, you can afford a home priced around $405,400. This estimate considers a 6% interest rate, a 30-year loan term, and typical property taxes and insurance. Your monthly mortgage payment would be ~ $2,366 per month.
The formula to calculate the principal and interest on a simple interest loan is SI = P * R * T whereby: P = principal or borrowed amount. R = interest rate. T = time or the number of years in the loan.
For example, the interest on a $30,000, 36-month loan at 6% is $2,856. The same loan ($30,000 at 6%) paid back over 72 months would cost $5,797 in interest. Even small changes in your rate can impact how much total interest amount you pay overall.
Most of your monthly payment is applied to the interest you owe, and the remainder is applied to paying off the principal. Over time, as you pay down the principal, you owe less interest each month, because your loan balance is lower.