Home Affordability

Working the numbers

There are a number of considerations and calculations to keep in mind when shopping for properties. Here are some of the main ones:

Debt to income ratio: Also known as DTI, this is the number that results in comparing your monthly mortgage payments (including insurance and property tax) to your monthly pre-tax income. When applying for mortgages, you generally want your DTI to not exceed 28% (see the 28/36 Rule below) but if your credit score is high enough, you might be able to still qualify with a DTI greater than 28%.

Bills: Along with your DTI, you want to have a realistic view of all your other monthly bills. Even if bookkeeping isn’t your strongest suit, you can go online with your bank and review past months’ statements in order to itemize your bills.

Down payment: This is the initial, partial, up-front payment for the purchase of a property. 20% is the sweet spot for most lenders but many can also work with smaller down payments. Your down payment amount is an important factor in your mortgage options.

Credit score: This number represents your risk potential to lenders, based on formulas developed by credit agencies that look at your income vs. all ongoing debt (i.e. your credit history). Your number will place you in a category ranging from “poor” to “excellent.” Credit scores are variable since your income and debt will increase and decrease over time, so it’s to your advantage to periodically check your credit score.