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Mortgage Ratios   

Mortgage ratios are important to the mortgage approval process. Email mortgage ratios questions

Mortgage Ratios:                                                                                 

  1. The first or front mortgage ratios are your total monthly (principal, interest, taxes, and insurance) housing expense divided by your total monthly pretax income.

  2. 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.

  3. 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.

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 to an interest only approach with a significantly lower monthly payment.Read more to see if this powerful tool could work for you.

For the the greatest flexibility and maximum mortgage ratios, you may be interested in the Cash Flow ARM.

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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.

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