How Much Can I Qualify For a Mortgage

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How Much Can I Qualify For a Mortgage – it depends upon several things in your financial status…

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This seems to be a question for many people when contemplating buying a home. It is a fair question and one that needs an answer if you are considering buying a home. Let me give you some details that will be of help to you with the question; “how much can I qualify for a mortgage?”
*This post has been updated 10-04-2022

We will start with the following:

What is your income? The following types are acceptable with a proven history and trend, normally 24 months. Less than 24 months’ history of other income may be used; on a case-by-case basis. Second jobs must have history, as well as bonuses, overtime, commission, and tip income. Any income not considered salary or base pay; you will need to provide evidence that you have received it on a continued basis. Some lenders will differ in some areas on the length of time and it will depend upon their underwriting team.

  1.  Base income
  2.  Bonus, overtime, commission, or tip income
  3.  Disability income -must be a long-term income
  4.  Foster-care income, interest, and dividend
    income, military income
  5.   Part-time job, second job, or seasonal income
  6.   Self-employment:
    *self-employment normally must have a stable income of income over a two year
    period. *two years of evidence with 1040 Income Tax Returns is standard. This
    income is analyzed and the bottom line income is used. This means that it is
    not what your gross receipts are, it is what your net income plus allowable add
    backs. NOTE:  If you are writing everything off and have no bottom line after all
    expenses, do not be surprised if you do not have sufficient income to qualify.     Documentation
    will depend upon the self-employment type; Sole Proprietor, Corporation, S
    Corp, Partnership
  7. Social Security, VA Retirement Income, and other
    government retirement funds
  8. Pensions
  9. Alimony * three-year continuation
  10. Child Support * three-year continuation
  11. Rental Income from non-owner occupied properties
dollar

 

This list is not entirely inclusive, but this contains a vast majority of income types.
The underwriter/lender must develop the theory that all income is stable, predictable, and will continue. Continuation does not always have to be proven, but again it will depend upon how the underwriter views the stability and continuation. They may require certain documentation.
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  • What are your debts?

1.  Installment loans, revolving credit cards, and any other payments that you pay month after month (recurring payments). *Does not include insurance or utilities
2.  Child support- Alimony – if these will continue for more than months *this will require the presentation of court documents for continuation.
3.  Lease payments, real estate loans (if applicable)

 

 What happens next?
Once you know how much income you make on a continued basis
each month, you should then add up all of your ongoing monthly obligations/debts.
Again, this does not include your monthly utilities or insurance, etc.

 

Example:
Monthly income – Base $9500

 

                             Bonus    1000 = $10,500 
**Remember that the bonus or any other income used will be an average
of the past 24 months is normal. It may be less under certain circumstances.

Sales Price of Purchase = $526500 x 95% = 500,175 rounded to $500,000 base loan amount **this would mean 5% down payment + cc

Monthly debts –
Housing project payment of principal & interest only for $500,000 principal mortgage amount @ 2.860% – 360 months. *estimated rate 

 

Housing Payment – $2070 – Principal/Interest

 

                               206 – Monthly Hazard Insurance
                                625 – Taxes 1.5% (e)
                                               292  –  Mortgage Ins (e)
                         2568.00 =  Total Principal/Interest/Taxes & Insurance

Other Monthly obligations

                            $ 600.00 – Monthly obligations
                                            2568.00 –   Housing obligation
                                            3168.00-   Total obligations
         Housing expense ratio = 2568   ÷   $10500 = 24% 
             Total Debt To Income ratio= 3168 ÷ 10500 = 30%

The standard DTI (debt to income ratio) allowed by the agencies is:

27 %  Housing  Total- Debt to income 36%.

If you have high credit scores this DTI could be accepted up to 45%.  The more you pay down the less risk a higher DTI is. It depends upon your entire credit history, income stability, assets/funds available, and the loan to value.

Normally if you have excellent credit an 80% loan to value with a 20% down payment, you can have a higher DTI  ratio of 36-45% + – *If the investor-automated underwriting system is used it will give.

Easy Calculation For Total Debt

An easy way to calculate how much total debt you can have for your income is the following examples:

**Examples *this is basic…it still depends upon your entire financial file, product, etc.

Monthly Income – $10500 ÷ 36% = 3780.00 **this includes housing and is total debt

Monthly Income        5500 ÷ 36% = 1980.00 *total debt

This also means that you will need to make sure your expectations for your new home meet the amount that you can qualify for.

In the second monthly income bracket above, total debt can be only $1980. This would mean a mortgage loan of approximately $300,000 would give you a principal and interest payment of approximately $1242, plus taxes, insurance, and other debts that can total only $1980 for the DTI to be at 36%. 
I keep stressing that all of this depends upon the amount of taxes, insurance, and (mortgage insurance if applicable, and if the loan to value is greater than 80%). If the property is a condo, there could be condo fees as well. 
Note: As stated DTI ratios may be higher depending on the other parameters of your financial status and loan criteria.

Most Lenders Use Desk Top Underwriter (Fannie)  or Loan Prospector (Freddie)-automated underwriting for GSEs

Many lenders use Desk Top Underwriter (FNMA), or Loan Prospector (FHLMC) to evaluate mortgage applications. The underwriting systems will weigh the criteria entered into the system and gives the last word on documentation, allowable DTI, assets to be verified, etc. Often these will allow the higher ratios.

Summary

How Much House Can I Afford – check it out as it gives some additional information…

 

Houses%2BAgain, which one of these can I afford?
     *Use the mortgage calculator on the site to get an
accurate principal and interest payments.

 

I hope this helps with the question “how much can I qualify for a mortgage.”
Disclosure: Mortgage rules and guidelines change frequently. We endeavor to give you up-to-date information if we are aware of it.  We usually give you the standard underwriting guidelines.

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3 thoughts on “How Much Can I Qualify For a Mortgage”

  3. Linda

    Thank you so much for stopping by. Yes it is much needed for those who do not understand that we often "want" more than we can afford. I try to tell it like it is, and the government often forgets to tell prospects that they still have to eat, pay car insurance, pay repairs, cable, telephone and the like. Regardless of what is added in the ratio, these bills still have to be paid.

    Thank you for stopping by and leaving a comment. I appreciate this.

  4. Deborah Richards

    I am just pretty happy to sign up ones own guestbook these days,Your own feedback and listed below are excellent in my opinion,incidentally I should say also definitely will teach some great supplements for your needs every. Dallas FHA Loan Pros

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