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Mortgage Ratios
Mortgage ratios are important to the mortgage approval process. Email
mortgage ratios questions
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Mortgage Ratios:
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Mortgage ratios, after your credit report, are the most
important factor an underwriter will look at. Mortgage ratios are frequently
referred to as Front and Back Mortgage Ratios and are expressed as "28/36".
A good reason to have a qualified Loan Officer do a thorough
mortgage ratio prequalification
for you is due to their complexity.
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The first or front mortgage ratios are your total monthly (principal, interest,
taxes, and insurance) housing expense divided by your total monthly pretax
income.
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The second or back mortgage 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.
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Traditional underwriting restricted you to 28/36 ratios.
However, progressive lenders have embraced electronic
underwriting for higher 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.
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An example:
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 you would be approved
assuming good credit and some reserves. Simple? Not really, but ratios are one
of the fundamental calculations you can make when thinking about a
mortgage.
*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, No Mortgage Ratio, and No
Mortgage Ratio or Documentation loans.
These products offer simple solutions.
Many of my clients are converting from fully amortizing payments
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For the the greatest flexibility and maximum mortgage ratios, you may
be interested in the Cash Flow ARM.
Learn more about investing
In 2008, Short Sales are where most of the action in real estate is. Learn
more about Short Sales
As a
Certified Mortgage Planning
Specialist, I offer an analysis of
your situation today can make suggestions on how small changes in how
your debt is structured today can have a life changing effect in the years
to come. Read more
about this free, no obligation service.
New! View
my
Wealthbuilder presentation and learn the safe way to manage your debt
and fund your retirement.
I hope the information on this page was useful to you. Please scroll down
to view my
Mortgage Market Guide. It is a weekly publication explaining the financial markets
from a consumer's perspective that is available on this website or by
email subscription. I have nearly 8,000 subscribers today and would be happy to have you as
well.
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