Qualifications
Checklist
This section gives you a better understanding of what information
is used to determine your ability to qualify for a loan.
Using the calculator in the Affordability section, you can
estimate what lenders may offer. Lenders will review your income,
debt, and savings information to determine how much money they
are willing to lend you towards your home purchase. Lenders
will provide you with an estimate on how much you can qualify
to spend toward the purchase of a home. This estimate is the
maximum amount that the lender is willing to lend you.
Based on your lifestyle and needs, you should consider how
much you are willing to spend on the purchase of a home. In
some cases, the homebuyer is not willing to invest as much
of their income toward a house as they can actually afford.
Below are further details about the kinds of information used
to determine how much you can afford, namely Income, Debt,
and Housing-related expenses.
Income
Your income will be critical in computing how much you can
afford to pay (using current lending guidelines) for housing
related expenses. Your income information is included in
the PITI (Principal, Interest, Taxes, and Insurance) and
debt ratio (PITI and debt) calculations. Your ability to
meet the PITI, or front-end ratio, and the PITIO ratio, or
debt ratio, can have an impact on a lender's decision to
offer you a loan.
Different loan programs have their own rules regarding the
percentage of income that can be applied toward monthly house
payments. For example, government loan programs such as FHA
and VA have ratios that allow you to apply a higher percentage
of your income toward the loan. While conventional loan front-end
ratios generally run around 28%, FHA allows you to apply 29%
and VA allows you to apply 41%.
Basically, this means that your monthly loan payment should
be no more the 28%, 29%, or 41% of total monthly income, depending
on the loan program.
Debt
A lender carefully considers your debt information when it
assesses your ability to repay a loan. Your debt information
is included in the PITIO, or debt ratio calculation. Loan
programs have different rules regarding the percentage of
income that can apply towards long-term debt. Your ability
to meet the ratio requirements can impact a lender's decision
to offer you a loan.
Government loan programs such as FHA and VA allow you to
apply a higher percentage of your debt requirements towards
the loan.
While conventional loan debt ratios generally run around
36%, FHA and VA allow you to apply 41%. Basically, this
means that
your long-term monthly debt payment plus your monthly loan
payment can equal no more than 36% or 41% of total monthly
income, depending on the loan program.
Housing-related expenses
Housing-related expenses are another category lenders consider.
These expenses often depend on the location and type of home.
This will influence the amount of the loan for which you
can qualify and may be one of the most critical factors in
your decision to buy a home. You should consider how housing-related
expenses could impact your budget. The purchase of a home
may increase your monthly expenses and reduce the amount
of money you have remaining to support your lifestyle.
YPTH's Affordability calculator provides estimates on typical
home expenses that include:
- Property tax - This expense is dependent on the location
of the home. Different counties and states have different
property tax requirements. As a homebuyer, you would be wise
to
consider
how this additional expense will impact your total
monthly expenses.
- Maintenance costs - This expense includes anything
from washers in the faucets to a new roof or heating
system and varies by
geographic location, size, and age of home.
- Utility costs
- This expense includes items such as electric, gas,
water, and heating and air conditioning and varies
by geographic location, size, season, and age of
home. The type
of construction (i.e. gas, electric) may also be
a factor in your utility cost estimates.
- Mortgage insurance (if
applicable) - This expense can vary by mortgage insurance
company, lender, loan product,
and loan-to-value
percentage of the loan.
- Other Costs - These expenses
vary depending on the type of home
and geographic location.
- These
costs can include:
- Homeowner association fees
- Flood insurance
- Other required property insurance
- Condominium
assessment fees and
- Other condominium escrow
items.
