Mortgage Company Lends Based Upon Debts/Income
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.
For a bank to loan money they determine your maximum house payment firstly by what is known as the front end ratio.
For any income determinants the mortgage company uses you gross income.
For FHA loans lenders like to see the ratio of the monthly payment of the house, including taxes and insurance, not exceeding 29% of your monthly gross income.
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.
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.
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.
It runs the gambit from construction workers who make money based upon the economic environment, to hourly workers, to commissioned based folks who write off everything under the sun on their returns.
Others work part time, and you can add many etc's here.
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.
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.
For a bank to loan money they determine your maximum house payment firstly by what is known as the front end ratio.
For any income determinants the mortgage company uses you gross income.
For FHA loans lenders like to see the ratio of the monthly payment of the house, including taxes and insurance, not exceeding 29% of your monthly gross income.
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.
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.
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.
It runs the gambit from construction workers who make money based upon the economic environment, to hourly workers, to commissioned based folks who write off everything under the sun on their returns.
Others work part time, and you can add many etc's here.
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.
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.
posted by Credit Counseling at
5:18 AM
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