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VA uses ratios and residual income (what's left after all expenses)
For FHA and Conventional, the mortgage payment should not be more than 33% of your gross monthly income. With this example, in a perfect world, your montly debt should not exceed 10% to 12%, but when was the last time you saw a perfect world?
Each loan program has it's own guidelines as to what counts as a debt and how to calculate. VA counts child care as a debt, but also does not count a mortgage that a former spouse is court ordered to pay (but finding an investor could be a trick).
If you had zero debts, how high I could get the approval would depend on your credit score and cash in the bank.
If you had a bankruptcy 2 years ago, you would have a tough time exceeding the state guideline ratios.
I think you get the idea..........there is no standard........it all depends.
there was but we got rid of that after the 80's bek we felt it discriminated against people that could not afford homes.
it was 3 to 1 rule. your annual salary time 3 and 20% down.
there was but we got rid of that after the 80's bek we felt it discriminated against people that could not afford homes.
it was 3 to 1 rule. your annual salary time 3 and 20% down.
Ok........I thought it was about 2.5 times income.
Or, the total monthly mortgage payment should be no more than one quarter of the monthly net household income.
We are currently in our tightest guidelines in 30 years. 25% is an old 1970's rule and doesn't take into account the real estate interest deduction. There are no absolutes. If this is a single guy, he can afford more of his income to be devoted to housing, more so than a head of household w/ 3 children.
This is the tye of question that I think started many of the financial problems we have today. You can afford what you are comfortable paying and only you know your income, lifestyle, hobbies, etc....
The answer is different for everyone one and blanket rules on DTI is what i think caused most of the inability to make payments.
Someone making $3,000 month can't afford 40% of their income to debt because that leaves $1,800- taxes= $1,200- health insurance= $1000- gas/ electric= $850- car insurance= $800- food= $400- gasoline= $300- phone/cable/ internet= $200. There is no car payment or repairs because there is no money for it and that is not the real world. Also missing is the all important cell phone plan. You can see how this person has no shot at all with spending 40% of income, but now lets change this picture.
Client 2 is making $12,000 can 50% of their income to debt because that leaves $6,000- taxes= $4,500- health insurance= $4,000- gas/ electric= $3,500- car insurance= $3,450- food= $3,000- gasoline= $2,800- phone/cable/ internet= $2,650. Plenty of money for car payment, cell phone and savings along with hobbies.
This is why residual income is the deciding factor of what anyone can afford because DTI alone does not tell the whole picture.
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