Lenders Lend X Amount Based Upon These Ratios
You are currently mulling over whether you should be purchasing a home and how much a lender will approve you for a mortgage. You can make a rough calculation of the monthly payment and then extrapolate that into an actual loan amount.
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.
Convential and FHA mortgages work slightly differently. Relative to the gross income the total house payment should not make up more than twenty nine percent for FHA.
Conventional loans work the same way except their front end ratio raises to 33%.
To qualify for either type of loan you must qualify not only on the front end ratio but the back end as well.
Determining the backend ratio is similar to the front end except one must add to the house payment to all other monthly payments made to creditors. This total amount in relation to the gross income is your figure.
You garden variety conventional will all a thirty three percent back end. FHA, as much as forty-one percent.
Where you can get into a little trouble in determining these ratios is factoring the proper income. Factoring monthly debt is a piece of cake comparatively.
For those on salary who have been on the job for a year plus, it is simple. Most people are not paid so simply.
What if you are self employed for 1.4 years? Maybe you are a traveling nurse and have been in town for six months. Maybe you get lots of overtime.
Others work seasonally and the list goes on and on.
A good rule of thumb if you are basically self employed or receive most of your income via commission is to average your last two years tax returns.
It is a shame that mortgage companies require the use of tax returns like that. We all know you make quite a bit more money than what is shown.
If your situation didn't fit in my explanation bite the bullet and call a loan officer. Otherwise you can use this info as a rule of thumb.
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.
Convential and FHA mortgages work slightly differently. Relative to the gross income the total house payment should not make up more than twenty nine percent for FHA.
Conventional loans work the same way except their front end ratio raises to 33%.
To qualify for either type of loan you must qualify not only on the front end ratio but the back end as well.
Determining the backend ratio is similar to the front end except one must add to the house payment to all other monthly payments made to creditors. This total amount in relation to the gross income is your figure.
You garden variety conventional will all a thirty three percent back end. FHA, as much as forty-one percent.
Where you can get into a little trouble in determining these ratios is factoring the proper income. Factoring monthly debt is a piece of cake comparatively.
For those on salary who have been on the job for a year plus, it is simple. Most people are not paid so simply.
What if you are self employed for 1.4 years? Maybe you are a traveling nurse and have been in town for six months. Maybe you get lots of overtime.
Others work seasonally and the list goes on and on.
A good rule of thumb if you are basically self employed or receive most of your income via commission is to average your last two years tax returns.
It is a shame that mortgage companies require the use of tax returns like that. We all know you make quite a bit more money than what is shown.
If your situation didn't fit in my explanation bite the bullet and call a loan officer. Otherwise you can use this info as a rule of thumb.
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