Do I Qualify for a Loan? Here is the Simple Math!

Dated: 02/21/2020

Views: 94

Income Requirements for Conventional Mortgage Explained

 
A conventional mortgage is a mortgage that's not backed by a government secured entity. Lenders for conventional loans are banks or financial institutions that fund mortgages and hold the loan or sell it off to investors after a period of time. Income requirements for conventional mortgages are also known as debt-to-income ratios (DTI) with the golden rule of 30% debt-to-income for repayment. Multiple factors come into play when it comes to getting a conventional mortgage and determining income requirements. Here's a look at them. 

Take all of your bills every month and total them into one amount. Subtract that total from your gross monthly income to determine how much cash you have left over that's not spoken for. The remaining gross monthly income shows you your DTI. For example: your bills total $2,200 a month and your monthly income is $7,000. After paying your bills, you're left with $4,800 each month. This puts you at a 31% debt-to-income ratio, which is what lenders like to see as you can easily handle insurance and taxes. The lower your DTI, the better your mortgage terms, whereas the opposite is true of a higher DTI. 

DTI is just one part of determining income requirements. You may have a low DTI, but if your down payment and income aren't sufficient to cover the monthly mortgage, you're not likely to be approved for the home you want to buy. Let's take a look: the home you want is $100,000 and you have $5,000 to put down. That leaves you with a $307 monthly payment. But if you make $1,000 a month and have $600 in monthly bills, you're left with $400 for the mortgage, taxes, and insurance. You're not left with enough money to pay incidentals and are a poor risk for the lender.

Source: Bankrate, LLC
Wayne Gaddy 843-603-5552 If you are thinking of looking for a new home; I can help you find the best lender for your financial situation.
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Wayne Gaddy

Experienced Real Estate Broker/REALTORĀ® Licensed since 2003 specializing in Assisting Owners in Selling for the highest price in the shortest amount of time and Assisting Buyers with a goal of Buying....

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