To preapprove you, we analyze your monthly income and monthly liabilities – which enables us to calculate your debt ratio. From that calculation we can let you know how large a house payment you can qualify for based on underwriting requirements, based on estimated property taxes and homeowner’s insurance. We also analyze the funds you have available for down payment and closing costs, and this enables us to determine a maximum purchase price based on these parameters. And so, your preapproval will determine what is possible for you by underwriting guidelines.
We do not take into account your expenses outside of your credit obligations – so what you can afford is a bigger question that is up to you – since you have other expenses beyond your house payment. You’ll need to consider the ability to save for retirement, school tuition, vacation expenses, groceries, car and travel expenses, and more. A large house payment – which you are qualified for – will limit alternative uses for your money. Ultimately, you have to decide what is right for you.
A well-qualified borrower could typically qualify for a house payment that brings their total monthly debt obligations to somewhere between 45% and 50% of pretax monthly income. For example, with an annual pretax salary of $84,000, or $7000 per month, a well-qualified borrower could qualify for total monthly debt of somewhere between $3150 and $3500. The total of all of your required liability payments must not exceed this figure.
To figure your required payments, total your monthly house payment (principal, interest, taxes, insurance and hoa fee), credit card payments, student loan payments, car payments, lease payments, installment loan payments, marital support payments, child support payments, and even IRS tax payment plan monthly payments. These will all be factored into your preapproval.
We are happy to discuss this with you and help you make an intelligently evaluated decision about what is right for you during the preapproval process.
Here are links to some other information you may find helpful: