You do not need to include information about alimony, child support, disability pensions or other monthly allotments unless you want it to be considered.
The two main factors lenders consider when determining whether or not you qualify for a mortgage loan are your credit scores and your debt-to-income ratio. Lenders can immediately pull your credit reports from the three major credit reporting agencies: Experian, Equifax and TransUnion. Included on this comprehensive report are your credit scores with each of the credit bureaus. Lenders also ask that you bring pay stubs from the past 30 days and two years of tax returns from which he or she will determine your income. If you have other income you want considered in the loan decision, be sure to bring documented proof you have that income. For example, if you get $500 per month alimony, bring a copy of the court order indicating that you receive this monthly amount. Your credit reports and the documented income will give the lender all the figures needed to calculate your debt-to-income ratio. Your debt-to-income ratio is then determined with what are known as front ratio and back ratio guidelines.
The front ratio is the maximum mortgage (or rent) payment you can afford based on your gross income (what you get before taxes are taken out). The back ratio is the total percentage of your income used for your monthly housing costs and your other monthly consumer debts (e.g., car payments, credit cards, signature loans, student loans, etc.). The front and back ratios are written in this format: 33/38.
Use the form on this page to find out your front and back debt-to-income ratios. To calculate your front debt-to-income ratio, enter what you pay for your housing in the "Housing Expenses Field" and your income under the "Monthly Income" heading. Then, click the "Calculate" button. Write the first percentage down. Calculate your back debt-to-income ratio by going back to the form and filling in the rest of the fields under the "Monthly Payment" heading. Click the "Calculate" button again. Write a forward slash (/) and the second percentage you came up with for your individual front and back debt-to-income ratio. It should look similar like this: 30/38. This is the figure that lenders will be looking at, along with your credit scores to determine if you qualify for a mortgage loan.
Because the debt-to-income ratio is a guideline, it varies. Most lenders use the 33/38 debt to income ratio guidelines. The 33 indicates that your monthly housing costs, including principal, interest, taxes, property insurance, mortgage insurance (when applicable) and homeowners association fees (when applicable) cannot equal more than 33% of your gross income and that your housing costs plus your other monthly consumer debts must not equal more than 38% of your income. Otherwise, you won't qualify for the mortgage loan.
Here's an example scenario using the 33/38 guideline: if the home you like costs $200,000.00 and you plan to put $20,000.00 down on a 30 year loan with a 5% interest rate, your total payment on the principal and interest will be $966.27. If your annual property taxes are $3,000.00 and your annual insurance is $1,500.00, that will bring your total monthly payment to $1,416.27. Your total gross monthly income will need to be at least $4,720.93 to qualify for this loan.
The Federal Housing Administration (FHA) guidelines state that a 29/41 qualifying ratio is acceptable. VA only has a guideline for the back ratio, which is 41. The debt-to-income guidelines are flexible. They are less rigid for people with excellent credit and larger down payments. If your credit is marginal and you can't come up with much for the down payment, the guidelines are much more rigid. And, if your debt ratio is too high, even if your credit is good, you still may not qualify for the loan.
The information provided by this calculator is only an estimate. Check with an accountant, a mortgage lender, financial advisor or consumer credit counselor for more accurate figures for your particular situation. For your privacy the information you enter on these screens is deleted when you leave this site.
