One of the most common questions that arises when inquiring about a mortgage is quite naturally, "What do I qualify for?" As your reliable and reputable mortgage broker in Fort Collins, we're here to provide answers, clarify your doubt, and pave your path towards homeownership. So let's roll up our sleeves and dive deep into the world of mortgage loans.
There's the more generalized method to have an estimate of your mortgage qualification which entails assessing your Debt to Income Ratio (DTI). In simple terms, it's the portion of your income that is utilized for debt repayments. Generally speaking, most lenders would want a DTI under 43%, although there are some loan programs that can accommodate a higher DTI.
Let's break it down. Consider you earn $5,000 per month, translating to an annual income of $60,000. In this instance, 43% of that would be approximately $2,150 - the monthly mortgage payment you could potentially qualify for. This calculation assumes you don't have a significant amount of extra financial obligations such as other loans or debts.
When working in mortgages, we consider these ratios to calculate how much you can afford to borrow. In essence, the top ratio is an evaluation of your mortgage payment against your gross income. On the other flip of the coin, the bottom ratio incorporates all of your collective debts, liabilities, and your mortgage payment as a proportion of your total income.
The acceptable ratio varies according to the type of loan. For example, FHA loans generally offer a higher ratio, while USDA loans typically require a lower ratio.
Once your DTI is established, it's vital to understand that your personal debts play a substantial role. Outstanding obligations can potentially reduce the amount you qualify for in a mortgage. These can include everything from credit card payments and student loans, to personal loans and unpaid taxes. Furthermore, income loss from rental properties also influences the equation.
One of the key criteria evaluated by us, your Fort Collins Mortgage Broker, is your income. The primary method to determine your income is to consider your yearly gross earnings. However, it can also be calculated using your net income or Adjusted Gross Income (AGI).
The Automated Underwriting System (AUS) is where all the numbers and financial statistics you've read about culminate. This computer system analyzes your credit report, banking information, and overall credit risk to ultimately approve or decline your mortgage loan.
In the end, understanding the mortgage calculation basics provides more clarity when lenders announce what you can or can't qualify for. Should you have further questions or need professional assistance, don't hesitate to get in touch with us, your trusted Fort Collins Mortgage Broker. We're here to make your homeownership dream a reality. Until next time, happy home buying!
