How Lenders Determine How Much Home You Can Purchase
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.
Convential mortgages are a bit more liberal in they will approve a thirty-three percent of the gross income.
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.
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.
For those on salary who have been on the job for a year plus, it is simple. Most people are not paid so simply.
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 part time, and you can add many etc's here.
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.
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.
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.
Convential mortgages are a bit more liberal in they will approve a thirty-three percent of the gross income.
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.
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.
For those on salary who have been on the job for a year plus, it is simple. Most people are not paid so simply.
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 part time, and you can add many etc's here.
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.
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.
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