Mortgage Company Lends Based Upon Debts/Income
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.
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%.
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.
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.
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 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.
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%.
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.
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.
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 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.
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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