Before getting a home loan one of the first things that you want to know is your Income versus Debt ration. Knowing how much you earn against how much you owe would give you a better idea as to how much your lender would lend you. How to do that? We would show you.
First off you would have to calculate your gross monthly income. Any recurring income that you earn in a month and can be documented counts. Unfortunately though something that you can not document would not help you qualify for a loan. You can use unearned sources though such as alimony, lottery payoffs, gifts, etc. You can also use income from your own income generating assets such as businesses, stocks, real estate, etc to this.
What you have to do next is to calculate your monthly loan debt. This includes everything from your credit card debts to your personal loans, car loans, and installment loans. If it is a revolving loan such as your credit card loan then use the minimum monthly payment. Also calculate and add to this list all other monthly obligations such as alimony, child support, etc. The good thing is that you don’t have to add to this list any debts that would be paid off in a six month time period. Sum all this up and you have your monthly debt service.
To sum it up no lender would give you a loan that obstructs your ability to pay back everyone else you owe. Every lender has a different formula and rules to crunch all these numbers but we’ll give you a general idea of how a lender might look at your numbers. Normally your monthly housing expense, taxes and all insurances should not go beyond 28 percent of your gross monthly income. Tax and insurance payments usually account for 15 percent of your total debt. Your total housing expenses and total monthly debt service combined must not exceed 36 percent or you may go below the lenders rules and might not be given the loan. Though you can gain some flexibility on these 28 percent and 36 percent rules. If you are willing to put up a large down payment say 20 percent for your loan that is that you are actually borrowing less than 80 percent of the house’s worth or if a rich uncle or a rich oil sheikh comes up willing to consign on the loan with you the lenders would be less worried about these rules and would be more than happy to give you a loan anyways.
Most importantly you have to remember that there are a number of lenders out there in the market today and each one have their own rules and guidelines. Just keep on searching and you might find a lender that might be willing to give you a loan. Go talk to some professionals and talk out your options. There might be a way to lower your monthly payment. An in this economy, every penny matters when it comes to your monthly payment.