To understand how much home you can purchase is really a function of the payment of the home, your income and your current debt load. To know these items you can plug them into a formula to help you make the determination.
Mortgage companies use two separate ratios to make this determination. The first involves your income relative to the house payment.
The first thing the lender determines is how much gross income you make on a monthly basis.
The front end ratio has to do with the house payment in relation to the gross monthly income. For government loans this ratio should be no more than 29%.
A thirty-three percent front end ratio is generally used as a basis for conventional loans.
To qualify for either type of loan you must qualify not only on the front end ratio but the back end as well.
Mortgage companies factor the rear end ratio in a simalar manner to front. The only real difference is instead of comparing income to just the house payment it is compared to the house payment plus all other monthly debt payments.
For FHA this ratio is best not to exceed 41%. For conventional loans it is 38%.
It is pretty easy to determine your monthly debt payments. What isn't so easy for the non-mortgage loan officer to determine is the actual income.
A lucky few are fortunate enough to be on a monthly salary. You can count on that to come in and so can a lender. For others it is more difficult to determine.
Many people are on a 1099 as contract employees. Some are self employed and make a bunch of money but it doesn't necessarily show up on a tax return.
Others work part time, and you can add many etc's here.
If you want to get a feel for the least a lender will offer you for income would be to average your tax returns for 2 years and divide by 24. This will be a start if you fit into the latter categories.
Most hate me for saying that to them, but lenders look at facts when determining how much they will lend to you. Especially today with all the financial turmoil.
If you really have no idea of how to factor your montly income you should consult with a mortgage professional. Good luck out there purchasing your home.
Mortgage companies use two separate ratios to make this determination. The first involves your income relative to the house payment.
The first thing the lender determines is how much gross income you make on a monthly basis.
The front end ratio has to do with the house payment in relation to the gross monthly income. For government loans this ratio should be no more than 29%.
A thirty-three percent front end ratio is generally used as a basis for conventional loans.
To qualify for either type of loan you must qualify not only on the front end ratio but the back end as well.
Mortgage companies factor the rear end ratio in a simalar manner to front. The only real difference is instead of comparing income to just the house payment it is compared to the house payment plus all other monthly debt payments.
For FHA this ratio is best not to exceed 41%. For conventional loans it is 38%.
It is pretty easy to determine your monthly debt payments. What isn't so easy for the non-mortgage loan officer to determine is the actual income.
A lucky few are fortunate enough to be on a monthly salary. You can count on that to come in and so can a lender. For others it is more difficult to determine.
Many people are on a 1099 as contract employees. Some are self employed and make a bunch of money but it doesn't necessarily show up on a tax return.
Others work part time, and you can add many etc's here.
If you want to get a feel for the least a lender will offer you for income would be to average your tax returns for 2 years and divide by 24. This will be a start if you fit into the latter categories.
Most hate me for saying that to them, but lenders look at facts when determining how much they will lend to you. Especially today with all the financial turmoil.
If you really have no idea of how to factor your montly income you should consult with a mortgage professional. Good luck out there purchasing your home.
No comments:
Post a Comment