![]() ![]() If the home is part of a homeowner’s association (HOA) that requires owners to pay dues, or the home requires supplemental insurance (such as flood insurance), include those expenses too. If your down payment is less than 20 percent, you’ll usually need to pay private mortgage insurance premium (PMI), which you should include in the 28 percent. ![]() The 28 percent portion is called the “front-end ratio” and includes the four components of your mortgage, known as PITI: principal, interest, property taxes, and homeowner’s insurance. This rule states that “a household should spend a maximum of 28 percent of its gross monthly income on total housing expenses and no more than 36 percent on total debt service, including housing and other debt such as car loans,” according to Investopedia. They will often use the “28/36 rule” when qualifying mortgage applicants. ![]() In addition to your income, lenders will also want to know your existing debt, such as credit cards, car payments, medical bills, student loans, or tax liens. Add this amount to your gross monthly income. Add up the extra amounts of income you earn throughout the year, and divide it by 12. Once you establish the likelihood of your bonuses and commissions for the next year, these amounts can be included in your estimated gross monthly income. It’s helpful to look at a historical track record for this type of income as well as an economic or industry outlook. If you have irregular income - for example, you’re paid on commission, receive bonuses or occasionally work overtime - estimating your income can be a little more tricky. In this scenario, your estimated gross weekly income is $525, and your gross annual income is $26,250 ($525 multiplied by 50 weeks), and your gross monthly income is $2,187.50 ($26,250 divided by 12). Understanding how much house you can afford involves some careful planning.įor example, let’s say you make $15 per hour, you work on average 35 hours per week, and you always take two weeks vacation. Finally, take that amount and divide it by 12 to estimate your gross monthly income. Simply multiply that number by the number of weeks you work each year to estimate your gross annual income. You can then multiply that number by your hourly rate to get an estimate of your gross income each week. If you’re paid by the hour, then it’s helpful to start with the average number of hours you work each week since your schedule may vary. For example, if your annual salary is $75,000 per year, your gross monthly income would be $6,250 ($75,000 divided by 12). If you receive an annual salary, divide it by 12 to estimate your gross monthly income for that job. How you calculate your gross monthly income depends on how you’re paid: This number will give you an understanding of how much money you have available each month to cover all of your expenses.
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