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Clear as Mud

Question: How do you know what you can afford?

Answer: It depends on whom you ask.

Reality: That is clear as mud!

Lenders will take into account various pieces of information when determining the size of loan any borrower qualifies for. One of the most basic and widely known figures a lender uses is the Debt to Income Ratio (DTI). This is a rather simple ratio that calculates a borrower's monthly debts and divides that number by the borrower's monthly income. The resulting number is that borrowers DTI. An Internet search will show you a range of DTI numbers that are generally acceptable for securing a mortgage loan. While this DTI calculation is relatively straightforward and useful for the lender, it tends to be less than straightforward and helpful for the borrower. 

Remember, your DTI number is for the lender to determine what they are willing to lend you. Not what you should necessarily be willing to undertake!

The reality is that the lender will collect the payment, not make the payment. It is up to the borrower to best determine what they can afford, given their specific circumstances and situation.  

When shopping for real estate it is best to determine YOUR budget. The banks and loan companies all have their formulas to determine what is a "good" or "profitable" loan for them.

This page has two calculators, a traditional DTI calculator, and a modified DTI calculator. Please use these calculators to help you better understand your budget when shopping for a home. 

Disclaimer: While we are not financial advisors and can't provide you with definitive answers on what you can afford, we have provided some useful information that you can use and consider when determining your budget in light of your specific situation and needs. We hope you find these calculators useful!

-The Hazys