Lenders are mainly concerned with a possible borrowers willingness and ability to repay a mortgage loan.
By going by the credit verification course of action, lenders can easily see a possible borrowers willingness to repay loans. That is, do they pay their bills on time? How many times have they been late? etc.
For lenders to determine the ability of a possible borrower to repay their mortgage observe, debt to Income ratios are used – “Front end and back end ratios” as they are called in the mortgage world. These ratios are the meaningful to calculating how much “house payment ” a borrower can realistically manager on a month-to-month basis.
Debt to Income Ratios simply compare a possible borrowers monthly payment obligations against gross monthly income.
Front end Ratios
This ratio will determine your maximum housing expense only, that is, your maximum mortgage payment consisting of principal, interest, tax and insurance. Typically lenders do not want this to go beyond 28% of your gross monthly income.
FRONT END RATIO: Annual salary $40,000/12(months) = $3,333 x 28% = $933
So in this example, the borrowers maximum house payment per month would be $933.
Back End Ratio
This ratio is how much of your income can go toward all monthly obligations. That is PITI, car payments, revolving credit card debt, any monthly medical bills etc… Typically the maximum is 36%.
BACK END RATIO: Annual salary $40,000/12(months) = $3,333 x 36% = $1200
Why not use a good online mortgage calculator to get a good idea of what you can provide? It will at the minimum get you started if you have no idea what you can provide; there is no need to guess anymore. See the link at the bottom and visit an easy to use mortgage website with many useful calculators.