How does Debt Effect my Chances for Loan Approval?

We calculate all figures on a monthly basis, and here’s how it works…

Ratio
The total proposed monthly debt from all co-borrowers, divided by the combined monthly gross income of all co-borrowers = debt to income ratio (should be less than approx 45%).

Income
Let’s say you and partner earn $6,666/mo (or $80k combined annual gross before taxes)…

Debt
Let’s say you’d like to make an offer on a home that costs $460k, and you’re putting 20% down.

Your proposed mortgage payment will be $2,200/mo, property taxes will be $300/mo, and we’ll assume HOA fees $175/mo… assuming no other fees like mello roos or homeowners insurance, or a myriad of other things…

(I can help you figure this out, but if you’d like to try for yourself… feel free to use Seth’s Awsome House Payment Calculator).

Plus… you have minimum payments of $90 student loan, $150 credit card, and $250 auto loan that show up on your credit reports…

Debt to Income Ratio
Then total debt of $3,165 / total income of $6,666 = 47%

Conclusion
So in this example, your ratio is a little high… too high to be in the range lenders like to see, but not necessarily too high to make your deal work. All scenarios are very dynamic. You can reduce your monthly obligations by $165, or cut back (or negotiate lower) your purchase price by $15k-$20k, or lower your interest rate, or have an experienced mortgage broker present your compensating factors to the underwriter in spite of the 47% ratio.

Bottom Line
A good broker can help you play with the variables, set your price expectations realistically, and optimize your chances for approval.

Call for personalization anytime… Seth 619.251.8803

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