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Mortgage ratios are important to the mortgage approval process. Email
mortgage ratios questions
The first or front mortgage ratios are your total monthly (principal, interest,
taxes, and insurance) housing expense divided by your total monthly pretax
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.
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.
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
*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.
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Learn more about investing
In 2008, Short Sales are where most of the action in real estate is. Learn
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