HOMEBUYER'S CHECK-UP

Debts and determining home affordability

Housing Ratio

When a lender qualifies a borrower for a mortgage they use a housing expense ratio which includes things like the mortgage principal and interest, property taxes, hazard Insurance, mortgage insurance premium, flood insurance and association dues.

Housing expense ratio is a percentage of your gross monthly income that is devoted to your housing. Depending on the type of mortgage loan the housing expense ratio could range anywhere from the typical 28% to as high as 50% of your gross income.

Debt Ratio

Back end debt expense ratio includes all debts that show on your credit reports plus your mortgage-to-be payment. Support payments are an exception to this rule. Depending on the type of mortgage loan the back end expense ratio could range anywhere from the typical 36% to as high as 60% of gross income.

Keep your debts to a minimum; every type of mortgage loan has a debt ratio maximum. This ratio includes your old debts and new mortgage-to-be payment. The number one debt that seems to stop people from getting a home loan is a vehicle payment, followed by student loan payments, then support payments.

Sticker Shock

Sticker shock is when your payment increases dramatically more than a similar payment. Example: You have rented an apartment for the last three years, your rental payment has been $300 a month but your new mortgage payment-to-be will be $1,200 a month.

We say yes, when others say no!