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Home Mortgage Ratios
home mortgage ratios:
After your credit report, the home mortgage ratios are the most important factor an
underwriter will look at. Home mortgage debt to income ratios are frequently
referred to as Front and Back Ratios and are expressed as "28/36".
The first or front ratio is your total monthly (principal, interest,
taxes, and insurance) housing expense divided by your total monthly pretax
The second or back ratio is your total housing expense plus
all other monthly debt divided by your total monthly pretax income. For
ratio calculation purposes, credit card debt uses the minimum monthly
payment. Also, if you have installment debt (car payment) with less than 10
months remaining, we can ignore the debt for qualification purposes.
Traditional underwriting restricted you to 28/36 ratios.
However, progressive lenders have embraced electronic
underwriting to improve home mortgage ratios. These Artificial Intelligence programs have the ability to
analyze your credit history, job stability, reserves, etc. and I am seeing
ratios up to 40/49 for well qualified borrowers. Another reason to have a
qualified Loan Officer do a thorough prequalification
Suppose you make $60,000 per year and want to buy a home for
$200,000 with a 20% down payment. Your loan will be for $160,000. Your Principal
and Interest payment will be $1118, Taxes $185, and insurance of $30 for a total
payment of $1333. Your payment divided by your monthly income of $5000 equals a
27% Front Ratio. Next, assume a $250 car payment, $100 in monthly credit card bills and
$50 in student loans. Your proposed payment of $1333, plus other debt of $400 gives
you a total debt of $1733 divided by your $5,000 monthly income for a Back Ratio
of 36%. If the loan program requires ratios of 28/36 (many allow much
higher ratios) you would be approved
assuming good credit and some reserves. Simple? Not really, but home mortgage
debt ratios are one
of the fundamental calculations you can make when thinking about a
*Please note* If, after reviewing the information on mortgage
ratios, you are concerned that you may have difficulty qualifying because your
income is difficult to verify, please see the section on Stated
Income and No Documentation loans.
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