Posted on: 31st Oct, 2009 05:10 pm
just curious why mortgage calculator allow for only 25% of your monthly income?
this may be right to certain level but then seems low after that.
example:
if you make 8,000 a month the calc will say roughly 2,000-2,5000 a month on mortgage is what you can afford.
leaving you 6,000.
i would assume that this number should be closer to 50%.
i'm probably 2 years away from buying but i am trying to plan ahead. thanks for your help.
this may be right to certain level but then seems low after that.
example:
if you make 8,000 a month the calc will say roughly 2,000-2,5000 a month on mortgage is what you can afford.
leaving you 6,000.
i would assume that this number should be closer to 50%.
i'm probably 2 years away from buying but i am trying to plan ahead. thanks for your help.
The calculators just give you a ballpark, it's better to be lower than higher and not be house poor. I would also question are you making or bring home $8K, gotta account for income tax. If you did not account for it then that housing ration is much higher. If you make $8 you may only bring home 6$ and then it's more like 41% with the figures provided. Although you may indeed be approved for more, your own personal comfort should weigh heavily on your mortgage payment.
A calcualtor using a debt ratio of 25% is very conservative.
While many lenders have developed their own formulas, most use the commonly accepted allowable debt ratios of 28% for house debt and 36% for house debt plus other monthly debts on the credit report. For the past ten years or so that has been loosened to 33% for house debt and 38% for house plus other debts.
These debt ratios are commonly accepted because Fannie Mae uses them after collecting tons off data since 1934 and they have studied over many years what are acceptable debt ratios.
The fact that one has taxes taken out of pay checks and has other monthly bills like food and heat and clothes, etc has already been taken into account by those allowable debt ratios.
If you have no other monthly debts, the house debt ratio by itself could be higher.
Automated underwritng will often allow a debt ratio of 45% to 50% and even higher for great cerdit scores and monthly reserves.
There are studies that show that the debt ratio is not as important as great credit scores and monthly reserves.
In summary, you will be able to get a mortgage with debt ratios higher than 25%. You will have to decide at what level you are compfortable.
While many lenders have developed their own formulas, most use the commonly accepted allowable debt ratios of 28% for house debt and 36% for house debt plus other monthly debts on the credit report. For the past ten years or so that has been loosened to 33% for house debt and 38% for house plus other debts.
These debt ratios are commonly accepted because Fannie Mae uses them after collecting tons off data since 1934 and they have studied over many years what are acceptable debt ratios.
The fact that one has taxes taken out of pay checks and has other monthly bills like food and heat and clothes, etc has already been taken into account by those allowable debt ratios.
If you have no other monthly debts, the house debt ratio by itself could be higher.
Automated underwritng will often allow a debt ratio of 45% to 50% and even higher for great cerdit scores and monthly reserves.
There are studies that show that the debt ratio is not as important as great credit scores and monthly reserves.
In summary, you will be able to get a mortgage with debt ratios higher than 25%. You will have to decide at what level you are compfortable.
