 TITLE: How Far Will Your Salary Get You When Buying a House? CONTENT: What Percentage of Your Income Can You Afford for Mortgage Payments?\n--------------------------------------------------------------------\nFor most homebuyers, home affordability comes down to a few primary factors: your income, your other debts and expenses, and the lender you're working with.\nLenders use something called the 28\/36 rule to determine how much you can afford in monthly housing payments, which, in turn, determines the maximum loan amount you can qualify for. The name for this rule comes from two measures of how your debt compares to your income—your front-end and back-end debt-to-income ratio (DTI).\n*   **Front-end DTI** measures how much of your monthly gross (pre-tax) income goes toward your mortgage payment (both principal and interest), property taxes and mortgage insurance. Mortgage lenders want their borrowers to be able to keep this below 28%.\n*   **Back-end DTI** includes all of your debt payments in addition to the proposed mortgage payment. Lenders want to make sure these expenses don't exceed 36% of your monthly gross income. This means if 10% of your income goes toward other debts, you may be limited to 26% of your income for housing payments instead of 28%.\nAs an example, if you earn a $60,000 salary, that's $5,000 in gross income every month. Using the 28\/36 rule, you can afford up to $1,400 per month in housing expenses and $400 per month in additional debt payments. If you have $600 in non-housing debt payments every month, the lender may limit you to $1,200 in housing payments.\nIt's important to keep in mind that there are lenders and loan types that allow you to exceed these limits. Federal Housing Administration (FHA) loans, for instance, allow borrowers to have up to a 31% front-end DTI and 43% back-end DTI. But if you're taking on more debt than is recommended, it could cause lenders to view you as more of a risk of default, and you may end up with a higher interest rate because of it. END