The Debt Ratio is calculated by dividing the borrowers monthly gross income by the borrowers total monthly expenditures.

Just because your mortgage professional says that you can borrow a certain amount, it does not mean that you have to find a home for that price. You need to be comfortable with your mortgage payments and loan program. You will have monthly expenses that are not factored into your debt ratio, that could make making your mortgage payment difficult some months.

Different home loan programs may allow you to borrow more or less depending on the guidelines, rates and repayment methods. Some examples of this are: A 3/1 ARM may allow you to borrow a little more than a 30 year fixed rate mortgage since it will usually have a lower interest rate. An interest only loan may allow you to qualify for more of a loan than a regular amortizing mortgage for 30 years also since it will have a lower payment. A 20 year fixed rate loan may not allow you to qualify for as high of a loan as a 30 year fixed rate loan since the payment on the 20 year mortgage will be higher.

When factoring how much you can borrower and how much you can afford you should pay close attention to unforeseen cost down the road. Buying a home at the top of your budget can cause you financial hardships down the road if there are any issues that come up. You do not want to be house poor, which means all you can afford every month are the essentials and house payment, this will not leave you any room with other expenses.