Another Ratio Example

Let’s take the previous example, keep the income the same but increase the total of monthly debt payments to $1,200.

Keeping the proposed house payment of $700, the front-end ratio remains the same ($700 divided by $4,000 income is still 17.5%) .

However, with the higher debt payments, the back-end ratio jumps to 47.5%, much more than usually allowable. As a result, this family needs to either pay off some debt so the recurring payment doesn’t “count against them” or buy a less-expensive home.

We’ll look at one more example in the next post – calculating ratios in reverse – so you’ll know what kind of house you qualify for given income and debt payments.

For more information on getting prequalified, learning more about loan ratio limits, and purchasing your first home, visit our website at www.springfieldfirsthome.com or call/text us at 417.872.9222.