Tagged: ratios

An Overview Of Income Vs. Debt Ratio (Marlboro Buyers or others getting Pre-approvals)

Financial information plays a big role in mortgage pre-approvals. All finance companies evaluate your assets, income, credit and debts. These determine whether you qualify for a mortgage and for what amount. This article includes an overview of income vs. debt ratio for Marlboro Home Buyers and others looking to get a pre-approval.

Earnings Analysis

Lenders will look at your total monthly earnings. This includes only items that can be verified. Salaries are the most common source of income. Mortgage companies will require paperwork (such as W-2 forms) for the previous 2 years, giving them a picture of pattern. They may inquire about any unusual items, such as fluctuations in wages or inconsistent amounts. Alternate sources of income may include alimony, investment properties, and stocks. Anything that you would like counted must have valid documentation. A history of earnings and possibility of future earnings can be important. The documentation standard may vary among lenders and certain exceptions may also be allowed. It is important to tell your mortgage consultant about all possible income sources to figure out what can or cannot be used.

What Is Considered Debt

Debt describes all current obligations such as charge cards and installment loans. The exact payment amount on loans and other structured debt are used. For adjustable debt like credit cards, minimum monthly payments are used in the calculations. These amounts are usually listed in your credit report. Some companies may be willing to exclude debts with under one year left or that you can verify someone else is responsible for. The figures are combined to calculate total monthly debt.

An Overview Of Income Vs. Debt Ratio For Marlboro Buyers and others looking for financing or getting a  Pre-approval

Lenders compare the monthly income to debt to come up with the income vs. debt ratio, which must remain under set limits. Additionally, mortgage payments plus your monthly debt must also remain under a certain percentage in order to secure approval. The exact percentage varies among financing companies and for each program.

For example, some lenders may require your monthly mortgage payment (principal, interest, taxes, and hazard insurance) not to exceed 28 percent of your gross monthly income. They may also not allow total debt to exceed 40 percent of monthly income. Based on this example, a borrower making 60,000 annually (5,000 monthly) may be allowed up to a 1,400 per month mortgage payment and 2,000 per month in total debt. Bear in mind that this is strictly an example and includes only one part of the financial analysis that may be performed. There are many other factors, such as credit rating and loan program requirements. It is important for Marlboro Buyers and others to consult with a local mortgage company for advice on income vs. debt ratio when  financing or getting a  pre-approval to get specific details relevant to your personal situation.

If you need help getting a pre-approval or for any other real estate related information, please contact Sujatha Bhaskara at Keller Williams Realty by calling 732-319-1340 or by emailing at sbhaskara@optonline.net.  For more information on what’s happening in the Marlboro, NJ real estate market, sign up to become a Marlboro Market Insider today!

Advertisements