- The 28/36 rule is simple to understand. Your mortgage should not be anymore than 28 percent of your monthly income. Your total debts should not exceed 36 percent of your monthly income. Lenders will not take a look at your income alone. They will analyze your liabilities and other obligations, such as car loans. There may be wiggle room here, especially if you have little or no debt.
- If you have no debt, lenders will be more willing to allow your mortgage obligations to creep higher to the 36 percent range. However, most lenders would be unwilling to move higher than 33 percent to allow some space for you to accumulate debt, be it an emergency or for other reasons. For example, when moving into a new home, many people buy furniture and appliances, some of which will require a loan.
- Lenders require that your debt-to-loan ratio not exceed 36 percent of your monthly income because of fears you are overextending yourself with debt. Your monthly income is expected to support general day-to-day expenses such as groceries, phone bills and the like. Having too much money tied to your debt may keep you from being able to afford such things. Or you may fall behind in your mortgage payments.
- If you need to lower your debt in order to get a mortgage loan, sit down and create a budget. You may work with a financial planner if you wish. On a piece of paper, chart your income and your expenses. If your expenses exceed your income, you need to take steps to flip that result. Cut down on your expenses and work toward saving money to pay off debts, creating more breathing room for you to take on a mortgage.
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