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Monday, February 2, 2009
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.
Lenders use a term known as debt to income ratios. They use two of them. One is known as a front end ratio.
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%.
For a lender to determine loan payment amount a prospective borrower must qualify on the front and back end.
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.
Conv. mortgages will allow a ratio in the 38% range. Government mortgages allow up to 41%.
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.
Now, you may be lucky and get a salary. Well heck, just divide by 12 and you have a monthly income.. It's not so easy for the rest.
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 seasonally and the list goes on and on.
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.
Folks who write off a bunch on their returns really dislike this. With the financial markets in the toilet and lenders tightening up the ship underwriting is becoming more strict.
Once you come to some conclusion here you should still seek the advice of a good mortgage lender. I wish you the best in your next home purchase.
Lenders use a term known as debt to income ratios. They use two of them. One is known as a front end ratio.
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%.
For a lender to determine loan payment amount a prospective borrower must qualify on the front and back end.
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.
Conv. mortgages will allow a ratio in the 38% range. Government mortgages allow up to 41%.
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.
Now, you may be lucky and get a salary. Well heck, just divide by 12 and you have a monthly income.. It's not so easy for the rest.
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 seasonally and the list goes on and on.
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.
Folks who write off a bunch on their returns really dislike this. With the financial markets in the toilet and lenders tightening up the ship underwriting is becoming more strict.
Once you come to some conclusion here you should still seek the advice of a good mortgage lender. I wish you the best in your next home purchase.
posted by Credit Counseling at
6:22 AM
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