Everywhere, I look there is discussion about ratios. An agent texted me this past weekend about what "generic ratios" to use..... that is a loaded statement...... "generic ratios to use". After all there have been 2 excellent post about Rule of thumb being 3 Times income for a loan amount by Eleanor Thorne and Don't be Mortgage poor by Jason Sardi. In both post they were writing about a generic scenario that we as loan officers always find ourselves faced with, that is trying to give you the Realtor an answer based on generic and limited information.
Now I know you want an answer, but the truth is...... I can not give you a straight one. Let us just look at the Housing Ratio. That is defined as principle,interest,taxes and insurance plus MI plus HOA dues if any as a percentage of GROSS INCOME. Now, to confuse you.... depending on what loan program and what investor you are talking to you will hear any thing from 29% (USDA), 31% (FHA)..... you might even see on some websites 28% to even 36%. Now to make the waters a little more clear.... add in all the credit card and car loans and yes even those "deferred payments" to get your total debt ratio......... Now again we will see anywhere from 41% to 43% to 50% to (with automated approvals 55% to 65%)
Now doesn't that just make it easy. Bottom line....... I prefer the "generic ratios of FHA 31/43. If they have awesome credit then they might be able to reach a little, BUT and this is the biggest BUT...... watch the budget. Yes the banks and ratios and the Automated System may allow your clients to buy that bigger more expensive home, BUT are they now buried and married by it and to it.......
Ratios can decieve you, they will lie and seduce you into possibly showing them homes that they can't pay for without giving up all the other things they like to do like taking a vacation or even just going to the movies.
Yes Ratios are a nice place to start, but the rest of the conversation should also include a little budget talk, maybe not for every buyer; but if you are talking ratios I bet you have first time home buyers and yes maybe, just maybe we ought to talk a little budget
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