How to Determine if You Can Afford Your Mortgage

Remember back in the good ol’ days of just a few years ago when anybody with a pulse could qualify for a mortgage? Well, welcome back to reality.

With the current housing debacle going on all around us, a lot of us are finding it much much tougher to get a mortgage. That is, if we’re even thinking about buying a house.

But, let’s say that you want to buy a place in this buyer’s market. The big question then becomes “Can you afford the mortgage you want?”

Well, Peter McDougall posed that same question today in a great article on TheStreet.com.

He gets into the 2 guidelines that lenders use to decide if you can qualify for a loan:
1. the housing-expense ratio
2. the total-obligation-to-income ratio

According to the article, your housing costs shouldn’t exceed 28% of your monthly income (he doesn’t clarify is that’s GROSS income or NET income. And your total obligations (housing plus other liabilities like credit card debt, loans, alimony, etc) shouldn’t be higher than 36% of your monthly income.

In addition to this info, Peter also links to a great Mortgage Required Income Calculator from BankingMyWay.com. This calculator will show you how much you need to make in order to afford the mortgage you want. It’s very cool. You gotta try it out.

So, if you’re thinking of buying a house either now or in the future, you have to check out this article. And when you do, let us know what you think.