Use the 28/36 rule to find out how much house you can afford by Chris Menard

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“This is crystal menard. If you re going to go buy a home or refinance. Refinance. A house or you re looking to buy a condo or townhome.

You need know the 28 36. Rule. Lenders use this all the time. And so to explain this actually pull it up microsoft excel online.

Which is free. So the first thing they want to know when you get trying to get approved for a new loan for a home what is your gross monthly income. I m gonna put in 6000 if you have a spouse or a partner that would include both incomes in the monthly gross and there s two ratios. We re going to look at 28 which i ll explain and 36.

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So i did point two eight and point three six. If you didn t get percentages just simply highlight them both and come up here and click on the percent icon. So let s do the twenty eight percent first which is also called the front end ratio. So i m gonna take the six thousand dollars.

And i ma multiply times the twenty eight percent. That is the maximum house monthly house dup that you can afford that is the front end ratio. And it includes principal. It includes interests.

It includes taxes and it includes insurance piti. If you purchase a home and it s in they have homeowners association fees it would include it in that ratio the second number that they look at we call your debt to income ratio or the back end ratio. It is simply the six thousand times. Thirty six percent 2160 in this example the back end ratio or debt.

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To income ratio. Having a hard time typing. Today debt to income has it count. It s like to call.

It that is the front end ratio. So it s your total house note the 1680 plus any debt you have that would include student loans car loans alimony child support anything that you have a debt for would be in there. It does not include food and stuff like that so stuff you actually have a debt on they even have this rule that if your car is going to be paid off within nine months that number does not go in to the backend ratio. But ten months or more.

It does so this is also this back end is why a lot of loans. Don t close when it s close to closing. Everything s fine and then somebody goes and buys a new car. So don t do that that s why your realtor usually tells you don t go do anything until after closing in case.

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You re wondering on the piti. I figured out that if you bought a home for two hundred and forty three thousand six hundred dollars and you put absolutely nothing down. Because ideally you re supposed to put 20 down. But not everyone has 20 to put down on that you ll have to pay pmi private mortgage insurance so i came up so remember nothing down so your monthly payment with interest on that would be at four point one two five percent that s about what the interest rate is down give or take divided by twelve twelve months in a year.

We re gonna go for three hundred and sixty months that s thirty years thirty times. Twelve is three sixty and the last argument. I need here is negative someone that shows a positive how much money are you borrowing. That is your principal and interest right there.

So that s the p in the eye part and i came up with the rest of these numbers you d do property taxes. This is the t 164 you would also have homeowners insurance of 233 a month and private mortgage insurance you didn t put 20 down you would have to pay the pmi private mortgage and i came up with 102. What i did not include in here is homeowners association fee because i don t know i total up those numbers. And there s your 1680.

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So that would be the front end ratio. Part the back end is 2160. So again car loans student debt. Alimony child.

Support. If you notice. I m going to take that number and subtract the 1680 so you only have 480 bucks to work with in this example is us not a lot anyway. I hope that helps though you understand how lenders use the 2836.

The 2836 rule you can use it next time you go look for a home. I appreciate your time feel free to subscribe to my youtube channel have a great day ” ..

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