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Originally Posted by spazzyfry123
What’s the “rule?” Don’t buy something more than three times your gross household income?
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Quote:
Originally Posted by GenXer
My house is 2.5x my income.  But my BMW however  |
The more refined rule of thumb to measure where you are in purchasing a particular home lies in what's called front end and back end ratios.
Front end ratio is your PITI (principle/interest/taxes/insurance) divided by your gross monthly income. A conservative look at this number says if your front ed ratio is 28% or less, then you can afford the home. More aggressive means anywhere from 32 to 36%.
Back end ratio is your PITI plus your long term monthly expenses (typically measured by expenses you expect to be paying past a few months) divided by your gross monthly. Conservative number for affordability is anything below 36 to 38%. Aggressive would push this out to 42%. Anything above 42% is really pushing it.
Front end and back end ratios are used by loan officers and financial advisors to determine home affordability.