Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: Five Cent Nickel list 12 simple ways to save on utilities. Blueprint for Financial Prosperity asks us all to help make a wish come true. Consumerism

Take your pre-tax and deduction monthly income. If a bank is verifying your income from direct deposit, they will typically count 160% of what gets direct deposited from employers. This is because they have to factor in taxes, health care, 401k, etc. If they are looking at a Social Security direct deposit they will count it 130%.

Now take a look at all the active debts that you have on your credit report. This will include mortgages (first and secondary), credit cards, student loans, car loans, etc. Take whatever the bureau is reporting as the minimum monthly payment for each of those and add them all up. Now divide the minimum payment total by your monthly income. The percent you come up with is your current debt to income ratio. (This does not include things like utilities, groceries, child care, etc.)

The next step to again take your monthly payment total and now add on whatever the new monthly payment for the loan will be. Now take that and again divide by your income. This is your adjusted debt to income.

That is the number that banks are going to use to see if you are capable of paying back the loan. Banks are going to use different methods of deciding how much is an acceptable DTI of course depending on their risk tolerance among other factors. The bank I work for wants an adjusted DTI of 40% or less for new customers and 45% or less for customers with an existing relationship.

In theory, its very much so workable but I imagine its cutting it way too close for many people.

(P.S. The formula gets more complicated if you are consolidating other debts with the loan, so I’m leaving that out for this little guide. A lot of times a bank will look to consolidate other debt in order to allow you to afford the loan. This may be a great thing depending on your situation, but it might not be either. Just do your homework.)

I would try to figure out what you have left over after your student loan payment. Then, I would use that number to see how much of a house payment you can afford. Be sure to include your savings account as part of your bills otherwise it might get left out.

Also, keep in mind that there is a hidden “savings account” with a mortgage since each payment represents some principal (although very small at the beginning).

I think the main thing to take from all this is the fact that you don’t want to do anything that is going to cause you pain.

Thanks for the formula. What would you suggest about our situation: even after we pay off our cc debt, our enormous student loan payment amounts to 20% of our monthly take home?

My initial thought is to see how much home we could afford, then subtract the balance of the student loan. Thoughts?