Introduction To Income Versus Debt Ratio For Southern CA Financing Pre-approvals

Financial information plays a big role in home loan pre-approvals. All mortgage companies evaluate your assets, income, credit score and debts. These affect whether you qualify for financing and how much of a mortgage you qualify. This blog includes introduction to income versus debt ratio for Southern CA financing pre-approvals.

Evaluating Income

Mortgage companies will consider your total income per month. This includes recurring items that can be confirmed. Salaries are the most common income type. Mortgage companies will require paperwork (such as tax returns) for the last 2 years, which gives them a picture of consistency. They may ask for explanations on any atypical items, such as changes in wages. Other sources of income may include spousal support, real estate investments, and stocks. Any items that you attempt to report as income must have acceptable supporting paperwork. Past earnings and potential for future income is obviously helpful. The amount of documentation needed will differ from one lender to another and some exceptions might also apply. It is helpful to inform your loan consultant of all possible sources to figure out what does or does not qualify.

Debt Analysis

Debt describes all continuing expenses such as credit card payments and loans. The exact monthly payments on loans and other structured debt are used. For revolving debt such as credit cards, minimum monthly payments are applied. These amounts are usually listed on your credit report. Many lenders will agree to exclude loans with less than a year left or that you may document another party is obligated to pay it. The figures are totaled to identify overall monthly debt.

Introduction To Income Versus Debt Ratio For Southern CA Financing Pre-approvals

Mortgage companies compare the calculated income to debt to come up with the income versus debt ratio, which must fall within a specific amount. Furthermore, mortgage payments plus your total debt should remain within a specific percentage for loan approval. The particular percentage varies for each lender and for each program.

Sample Scenario

For example, some companies may require the monthly mortgage payment (principal, interest, land taxes, and homeowners insurance) not to exceed 28 percent of your gross monthly income. They may also not permit combined debt to exceed 40 percent of total income. Using this example, a person making 60,000 annually (5,000 monthly) may be approved for a 1,400 per month mortgage payment and allowed 2,000 per month for total debts.

Bear in mind that this is only an example and includes only one part of the financial analysis that can be completed. There are many other considerations, such as credit score and program specific rules. It is important to work with an experienced loan consultant for guidance on income versus debt ratio for Southern CA financing pre-approvals specific to your particular finances.