Income Vs. Debt Ratio | Advance NC Mortgage Pre-approvals

By
Real Estate Broker/Owner with Premier Realty NC

Personal finances play a significant role in home loan approvals. All lenders evaluate assets, earnings, credit and existing debts. These affect whether you can obtain a loan and for how much. The following is information on income vs. debt ratio for Advance NC mortgage pre-approvals.

Determining Income

Lenders will calculate your gross earnings per month. This counts recurring income that can be confirmed. Salaries are the most typical income form. You will be asked to provide paperwork (such as W-2 forms) for the last two years, giving them a picture of how stable it is. They may inquire about any unusual situations, such as inconsistent figures. Other income sources can include spousal support, investment properties, and stocks. Anything that you attempt to use as income must have acceptable supporting paperwork. Past earnings and likelihood of continued income is obviously very helpful. The type of documentation needed can differ among lenders and certain exceptions can also apply. It is helpful to inform your mortgage consultant about all potential sources for a thorough assessment.

What Counts as Debt

Debt includes all recurring expenses such as credit card payments and installment loans. The exact payment amount on loans and other fixed-payment debt are used. For revolving items such as credit cards, minimum monthly amounts are used in the calculations. These figures are usually available on your credit report. Many lenders will be willing to ignore loans with under a year remaining in payments or that you may prove another individual is responsible for. The amounts are totaled to figure out specific monthly obligations.

Information On Income Vs. Debt Ratio For Advance NC Mortgage Pre-approvals

Lenders compare the total income to debt figure out the income vs. debt ratio, which must remain within certain limits. Additionally, mortgage payments combined with your monthly debt should remain within a specific percentage in order for your loan to be approved. The specific benchmark differs for each lender and based on the program as well.

An Example

For example, some companies may require your total mortgage payment (principal, interest, property taxes, and insurance) not to exceed 28 percent of your total monthly income. They might also not allow combined debt to exceed 40 percent of combined income. Based on this example, someone making 60,000 per year (5,000 monthly) may be allowed up to a 1,400 per month mortgage payment and allowed 2,000 per month for combined debts.

Bear in mind that this is only an example and considers only one aspect of the financial evaluation that may be performed. There are additional factors, such as credit history and program specific rules. It is essential to speak with an experienced mortgage company for advice on income vs. debt ratio for Advance NC mortgage pre-approvals specific to your personal situation.

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