Income Vs. Debt : What Does It Mean?

When purchasing a new home, many people enjoy the hunting part of the process, but are baffled by the financial part of the equation. We can help you make sense of a few of the more confusing bits. Two of the biggest things that lenders consider when deciding whether or not to approve you for a mortgage is your income vs. your debt.

Income is all of the money you bring in on a monthly or yearly basis. This includes your wages, that of your spouse or anyone who will be entering into the mortgage contract with you. You usually calculate this as your gross household income. The gross part refers to your income before taxes and fees are taken out. Income can also include money you receive regularly form investments, other properties, social security, sales or anything that can increase your monthly earnings.

Debt is the negative aspect of your finances to income’s positive. Debt is anything you have a responsibility to on a regular basis. Mostly the bank or lender will be concerned with acquired debt, such as car loans, unsecured credit card debt, and other payments you make besides normal rent and utilities. Rent and utilities will transfer to your new home so these are not as much of a concern to the lender.houseinhand

The lender then uses these two items to determine your debt to income ratio. This is the number they use to decide if they want to lend to you and how much they are willing to give you.

A realtor can help you estimate how much you can afford.

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