The Prepared Buyer - Income and Debt Ratios

Introduction To Income Versus Debt Ratio For Charlotte NC Financing Pre-approvals

Financial figures play a significant role in mortgage pre-approvals. All finance companies examine your assets, income, credit and debts. These determine whether you qualify for a mortgage and how much of a loan you will receive. The following is introduction to income versus debt ratio for Charlotte NC financing pre-approvals.

Evaluating Income

Mortgage companies will calculate your gross income per month. This counts only items that can be documented. Wages are the most common income form. Mortgage companies will ask for paperwork (such as tax returns) for the last 2 years, which tells them how consistent your earnings are. They might inquire about any strange situations, such as variable figures. Additional income sources can include spousal support, investments, and stocks. Any items that you wish to use as income must have valid documentation. Past earnings and probability of continued earnings is naturally very helpful. The amount of documentation required will differ from one mortgage company to another and certain exceptions can also be permitted. It is helpful to notify your loan officer of all potential income sources to know what can or cannot be used.

Debt Analysis

Debt describes all continuing liabilities such as credit cards and loans. The exact monthly payments on loans and other fixed-payment debt are used. For adjustable items such as credit cards, minimum monthly payments are used. These amounts are normally listed on your credit report. Many lenders will be willing to exclude loans with under a year left or that you can verify another party has been paying for. Payment amounts are totaled to calculate overall monthly obligations.

Introduction To Income Versus Debt Ratio For Charlotte NC Financing Pre-approvals

Mortgage companies compare the total income to debt for the income versus debt ratio, which must remain within certain limits. Additionally, mortgage payments plus your monthly debt should remain under a specific percentage in order for your loan to be approved. The exact percentage will vary for each lender and for each program.

Sample Scenario

For instance, a mortgage companies may permit up to 28 percent for mortgage payments and 40 percent for total debt.. Based on this example, a person earning 60,000 per year (5,000 per month) may be allowed up to a 1,400 per month mortgage payment and allowed 2,000 per month for total debts.

Keep in mind that this is only an example and includes only the income versus debt aspect of the financial review that will be performed. There are many other considerations, such as credit history and mortgage program restrictions. It is important to contact an experienced loan advisor for full details on income versus debt ratio for Charlotte NC financing pre-approvals specific to your personal situation.