How to calculate mortgage & income ratio

Mortgage and income ratios are important factors in qualifying for a mortgage loan. A mortgage ratio is suppose to represent all costs involved in having a mortgage. This ratio normally includes principal, interest, taxes and insurance on a mortgage (how much house can you buy). Income ratios are normally calculated based on gross monthly income. Lenders often use mortgage and income ratios to ensure that borrowers have sufficient amounts of income for the amount of credit requested.

Gather the amount of taxes and insurance on the mortgage. You may need your recent tax bill and homeowner's insurance policy to calculate your taxes and insurance on your mortgage. You will need to take your annual taxes and annual homeowner's insurance premium and divide by 12 months to get the monthly costs of your taxes and insurance.

Obtain your principal and interest payment on your mortgage from your lender. The principal and interest due will be your monthly obligation to the lender. This payment is usually already broken down monthly.

Gather your last paycheck stub or last year's tax returns to calculate your income. You will need to calculate your gross monthly income, which is the amount you earned before any deductions. Oftentimes, check stubs have year-to-date gross income. The paid-to date on your check stub will be important in determining how many months you have been paid if it is not your last check stub of the year. For example, if you use your Oct, 25 check stub, you will need to get the paid-to date of the work you were paid for on Oct. 25. If the paid-to date is Oct. 17, you can obtain the months by taking the day of the paid-to date, which is the 17th, and divide it by how ever many days is in the month, which is 31 in October. This will break down October into months. You will need to add this amount to the number of full months in the year, which is nine. You will need to get your year-to-date gross monthly income on your check stub, W-2, or 1099 and divide it my the number of months in the year. This will give you your gross monthly income.

Add your monthly mortgage tax, insurance, principal and interest obligations. This is be your monthly mortgage obligation.

Calculate your mortgage and income ratio. You will need to divide your monthly mortgage obligation by your monthly gross income. You will need to multiple by 100 to get the percentage of your monthly gross income that you must use to make your mortgage obligations.

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Things Needed

  • Mortgage tax bill
  • Homeowner's insurance policy
  • Principal and interest payment
  • Last paycheck stub
  • W-2 or 1099

About the Author

Jennifer Allen obtained her Bachelor of Arts in economics and a Bachelor of Arts in political science, and has worked in finance since May 2006. She completed her Master of Arts in human resource management in December 2009. Allen has written a variety of articles that are published on various websites.

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