The amount you can prequalify for a home loan will depend on your income and your monthly payment. Lenders look at not only the percentage of your income that the mortgage payment will take, but also what other debt obligations you have that will continue for at least nine months after the start of your mortgage. Lenders want to know that monthly mortgage fees will fit your budget, which will reduce the risk for the lender to repay you the loan.
- Things you need
Determine your average monthly income. If your salary is not equal each month, take the total of your payments for the past year and divide by 12. For example, if you’re total income was $ 48,000, you average monthly income would be $ 4,000.
Multiply your monthly income by 28 percent if you are considering a conventional mortgage and 29 percent if you are considering an FHA mortgage to determine the maximum monthly payment you qualify for. For example, if your monthly income is $ 4000, you would probably only prequalify for a home loan for a mortgage with a monthly payment of $ 1,120 if you are looking at a conventional mortgage.
Determine the total minimum payments of all other outstanding debt securities outside of your mortgage, such as student loans, auto loans and child support payments. If you have debts that will be retired within nine months, do not count them within this limit.
Multiply your monthly income by 36 percent if you are considering a conventional mortgage and 41 percent if you are considering an FHA mortgage to determine the maximum debt obligations lenders will allow you to have, including your monthly mortgage payment. Then subtract the total of your other debt securities from Step 3. For example, if you are applying for a conventional loan and have a monthly income of $ 4,000, most of your debt securities totals could be would be $ 1,440. If you had $ 280 in other debt, the most that would be left for your mortgage payment would be $ 1,160.
Take the smaller of the two amounts from September 2 and Step 4. This is your maximum monthly payment. For example, since $ 1160 is less than $ 1,120, the maximum mortgage payment for you, if your monthly income is $ 4,000, $ 1,160 would be.
The best debt-to-income ratio for a home loan
Generally, the higher your debt-income ratio the better, from the perspective of a lower mortgage lender. Having a relatively low ratio of debt to income when you apply for a home loan means that you have a greater ability to take on new debts. This makes you more likely to get a loan, and increases the amount of the loan for which you potentially prequalify for a home loan.
From debt to basic income
Debt-Income is a common report used by mortgage lenders that compares your monthly debt obligations to your gross monthly income. It offers insights into how you are already leveraged when seeking a new home loan. Conventional mortgage lenders generally operate with a maximum ratio of 36 percent the norm, according to Lending Tree. This means that your monthly debt, including auto loans, personal loans, and credit card debt, must not exceed 36 percent of your income.
The Federal Housing Authority is one of the largest government-sponsored loan programs operating under the US Department of Housing and Urban Development. FHA loans offer borrowers access to loans with a minimum background payment requirement of only 3.5 percent, according to HUD. This is a risky proposition for the lender of the FHA, if homeowners are required to carry FHA mortgage insurance, which covers payments if the homeowner involuntarily loses his job. Because FHA loans usually include a monthly mortgage insurance payment, the debt-to-income guidelines are slightly higher at 41 percent, to allow for the increased mortgage obligation.
Ratio Income Mortgage
Another common debt report that is often used in combination with the debt-to-income ratio is an income-related mortgage. This only considers your home loan payment as a percentage of your gross monthly income. Traditional lenders want a home equity loan at or below 28 percent. Again, due to the mortgage insurance obligation, FHA loans have a ceiling slightly higher than this ratio of 29 percent. That means no more than 29 percent of your gross monthly income should apply to your home payment with FHA loans.
While the FHA and other government-backed loan programs generally have strict rules on debt-to-income ratios, traditional lenders are sometimes flexible. For example, if you make a payment in more than 20 percent mortgage lenders usually require, they are less concerned about your debt ratios as you make a significant investment in the home. As a potential borrower, you need to consider your own finances in relation to these ratios. If you have rare sources of income or assets that give you financial flexibility, you could get by if a lender allows you to stretch a bit. However, if you pay fees that are not often taken into account in report calculations, such as child support, child support,