Home Price versus Income

There are two ratios that matter when calculating how much house you can afford. The first is called the front ratio or housing ratio. It is simply the mortgage payment divided by your income. For a first time homebuyer, we recommend giving yourself a little extra room on both ratios. This is your first time owning a home and being responsible for the incidentals that come up when you own a home.

The second ratio is the back ratio or people more commonly refer to it as your debt to income ratio (DTI). Your DTI is all your monthly payments (including mortgage) divided by your gross monthly income. This will determine your ability to get a mortgage. Each mortgage may have their own DTI requirements. To see how much house you can afford, you can use an affordability calculator to do all the math for you. You can also talk with a CityWorth mortgage loan officer to understand what loan programs are best for you.

Homebuyer’s Tip

Your debt ratios only include items on your credit report, IRS tax payments, and child support/alimony. Groceries, cable, streaming, electricity, and other utilities are NOTincluded.

  • To calculate your DTI, add all your monthly payments and divide them by your gross monthly income. Your gross monthly income is the amount of you have earned before any taxes or deductions are taken out.
  • Example:
    • You have the following bills
      • $1,400 per month for rent
      • $250 per month for your car loan
      • $200 per month for your minimum credit card payments
      • $100 per month in student loans
      • Total is $1,950 ($1,400 + $250 + $200 + $100)
    • You have a gross monthly income (before taxes and deductions) of $5,850
    • Your DTI would be 33% ($1,950 / $5,850)