How Lenders Determine How Much Home You Can Purchase
So, you want to know how much home you can afford. What I want to outline to you in this article is how lenders determine this. You don't necessarily have to speak to a loan officer to find out.
Mortgage companies use two separate ratios to make this determination. The first involves your income relative to the house payment.
For any income determinants the mortgage company uses you gross income.
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.
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.
You garden variety conventional will all a thirty three percent back end. FHA, as much as forty-one percent.
You probably say to yourself, "this is pretty easy. I'll just add and divide and that's that." Not so fast. The tough part about this making the correct determination of income.
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.
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.
This is only a partial list. It's much more extensive.
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.
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.
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.
Mortgage companies use two separate ratios to make this determination. The first involves your income relative to the house payment.
For any income determinants the mortgage company uses you gross income.
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.
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.
You garden variety conventional will all a thirty three percent back end. FHA, as much as forty-one percent.
You probably say to yourself, "this is pretty easy. I'll just add and divide and that's that." Not so fast. The tough part about this making the correct determination of income.
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.
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.
This is only a partial list. It's much more extensive.
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.
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.
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.
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Determine your front & back end ratios in Austin. Go to a mortgage refinance calculator.
posted by Debt Consolidation Loan at
5:22 AM
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