Are you wondering.. How much will I get approved for a Mortgage? If so, then before going through the whole process of going to a loan Officer, having your credit pulled and having to wait forever to find out how much you can get approved with these 3 Steps…
Totaling Up Your Monthly Expenses/Payments
The first thing we need to do is come up with a Total of one’s Monthly obligations. But, you only need to add up items that show up on your Credit report such as Bank loans (student, auto, business or personal), Credit cards (but we only need to use the Minimum Payment for the Monthly Expense) and any other “Revolving” debts you may be paying monthly.
Now you will “not” include payments such as insurance payments (expect for House Insurance), cell phones, utilities (cable, gas, electric, etc. )#) or anything else that can be canceled without future obligation.
However, if buying or refinancing a “Mortgage” you will need to add the Monthly “Insurance & Taxes” payments to the Monthly payments when doing your calculations.
Also, you will need to calculate your “Proposed Mortgage/Loan Payment” and add that into the Total of Monthly Payments/Expenses.
Quick Note: If you are “Refinancing” then you will not include your “current” mortgage payment because it soon be the loan Mortgage that you are applying for now!
Calculating Your Monthly Income
Next we need to figure out what your Monthly Income is for you and anyone else that will be on the Mortgage/Loan…
Here are some guidelines…
1. Overtime- income generated by working overtime can only be applied to your monthly income if and only if, you have worked overtime every week for a minimum of 2 years.
2. Disability payments- to include payments received for “disability” then you “may” have to get documentation from your own Doctor saying that you will be disabled for at least the next 2 years and proof that your payments will also continue for the next 2 years.
3. Rental Income- to use “Rental Income” when calculating your Monthly Income, then you’ll want a “Lease” which is signed to show that you will be receiving rent for a “guaranteed” amount of time. If you do not have a lease then you can show “bank statements” showing monthly deposits every month or “canceled checks from the “tenant”.
Now that we have your “Total Monthly Expenses & Income” we can move on to the 3rd and final step…
Calculating Your D. T. I (Debt To Income Ratio)
The “DTI” is what the banks use to see in the event that you qualify for a Mortgage/Loan. It’s the percentage that your total monthly expenses will be of one’s Total Monthly Income.
We calculate this by…
Taking your “Monthly Debt” and dividing it by your “Monthly Income”.
Ex. A family with $4, 000/month in expenses and $10, 000 in Monthly Income would have a DTI of. 40 (which is a 40% DTI).
Depending on the “Loan Program” you are applying for, the DTI will differ from program to program. But a Safe Bet would be a 38% DTI. Now this, in the past few years, was as high as 50 if not 60 (which is the reason for the current “economic crisis”).
However, if you are a first time Home Buyer and you apply for a FHA Mortgage then i have seen DTI’s as high as 48% getting approved a great deal of the time if the Credit and other facets are over all good.