Mr. /Mrs. Loan Officer How Much Do I Qualify For?

When shopping for a new home most people will go to their local bank ask to speak with a Loan Officer to ask how much will they qualify for on their first home Mortgage. Sadly, I have heard the following story to many times as a Mortgage Broker in South Florida (Palm Beach Gardens). 

Last night while have dinner my phone rang from a past client who wanted to refer me a friend of his who was having problems with their Loan Officer at their local bank.  The problem was he could not a get a straight answer from this person on whether or not he would qualify for a home loan.  (Sound Familiar)

Let me get to the Readers Digest version.  This Loan Officer at the bank handed the client a Good Faith Estimate and Truth-In-Lending page and that was it. The client asked if that meant he would qualify for the Mortgage.  The Loan Officer informed him that because of current market conditions it would be difficult to get a high Loan-To-Value home loan.  Please remember this is a first time home buyer and all he really wants to know if he can qualify for a mortgage. He could really care less about market conditions all he wants is a simple yes or no answer. So again this person asked "So What Does this Mean?" "Do I Qualify Yes or No?"  Once again the Loan Officer said well she would do her best and wasn't sure.

This is where I get into the picture. 

I asked the following questions to the client:

• What was his FICO?
• Was he the only one of the Loan?
• How Much (Rough Estimate) was he looking to borrow?
• What was his last two years income? (Sales Position)
• What was his monthly outlay on credit cards and car loan?
• How much money had he saved up?

Answers to my Questions:

• 622
• Yes
• $200,000
• $55,000
• $1,200
• $7,000

Now that I have more of his financial picture I understood what type of Loan the Loan Officer had given him on the Good Faith Estimate, it was an FHA loan. (In my opinion a very good choice) However, please keep in mind what the client's main goal was.

"How Much Do I Qualify For?"

While I was on the phone with him I told him let's go over the numbers or what the industry calls his DTI (Debt-to-Income)

Average Yearly Income was $55,000 or $4,583 a Month (Gross Before taxes)

I told the client that I like to use the 50% rule.  To get a real firm approval we would have to sit down and choose the programs, rates, terms, etc... before we can lock this down. However, at this time his main goal was to just to get a rough idea of how much can he qualify for which in this case the 50% rule would at least give him a rough rule.

$4,583 Gross Monthly Income

-2,292  50% of his Gross income

                                                                           $2,292

                                                                           -1,200 (Credit Card Payments and Car Loan)

                                                                           $1,092  Left to pay everything on the Home

Now I broke this down a further just to give the client what he was asking for (a Rough Idea on How Much he can Borrow).

On his Good Faith Estimate given to him from his Bank they had quoted him 7.25% (No Comment)

$200,000 @ 7.25% = $1,364

Taxes 2% Rule        = $   333

Insurance                 = $   166

Mortgage Insurance=  $__83

Total                        $1,946

This would make his total $1,946 + CC Payments $1,200 = $3,146 for his total Debt-debt-to-income: 69% Even if we had is rate at 6.25% his DTI would be 66%.

My suggestion is he is looking at to much house. Even if he had a co-borrower for the home he would still be house poor.

After going through all of these numbers for the client and his options he realized he had to pay down some of his Credit Cards if he was going to qualify for that much of a home loan or look for much less of a Home.

In the end the only question he had for me was why his Loan Officer at his Local Bank didn't explain this to him the way I had done.  To answer his question I gave him my standard answer "That is what separates the True Mortgage Professionals"

*Note: The 50% rule is just a rough guide. The reality is the majority of the times most Lenders would like to see somewhere in the mid 40% range but for simple math I have found the 50% rule an easier way of going. Also in some cases I have seen the Lenders go up into the 60% range but in that case the clients had plenty of assets and an overall a very strong file.

In closing, when asking your Loan Officer how much you would qualify for on a home Mortgage and you feel you are getting the run around. Simply find another True Mortgage Professional who will take their time and answer ALL OF YOUR QUESTIONS.

For More Mortgage Advice: Mortgage Advice in South Florida

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