Posted on: 09th Jul, 2010 12:41 am
Hi All,
We're planning to purchase our 1st home in California within the next 6-12 months. I'd like to find out what is the most that my wife and I can borrow.
1) What is the debt-to-income ratio typically used today in California? 39%? How can I get more loan?
2) We're planning to do a 30year loan. I currently have 8 years left on my grad school loan, which I'm paying $1200 a month. How does the lender factor that into the "affordable monthly debt"? Do they add the $1200 plus the house loan to get the "affordable monthly debt", or they do some type of adjustment?
3) My wife is temporarily working overseas. Will lenders consider her income for our loan?
Thanks.
-Johnny
We're planning to purchase our 1st home in California within the next 6-12 months. I'd like to find out what is the most that my wife and I can borrow.
1) What is the debt-to-income ratio typically used today in California? 39%? How can I get more loan?
2) We're planning to do a 30year loan. I currently have 8 years left on my grad school loan, which I'm paying $1200 a month. How does the lender factor that into the "affordable monthly debt"? Do they add the $1200 plus the house loan to get the "affordable monthly debt", or they do some type of adjustment?
3) My wife is temporarily working overseas. Will lenders consider her income for our loan?
Thanks.
-Johnny
Hi Johnny, here in California we use the same debt to income ratio requirements as the rest of the United States.
If you are qualifying for a conventional loan then the debt to income (DTI) ratio limit will be 45% with most lenders (if you have 20% down), if it's less than 20% down then 43% will be the DTI limit due to requiring mortgage insurance.
FHA financing prefers a DTI limit of 43% for everything, and 31% for the housing portion, however if your credit is strong, your down payment is more than 3.5% of the sales price, or you would have plenty of money leftover after purchasing then with an automated underwriting approval (it's like a computer program) a total DTI up to the mid 50's can qualify and a housing DTI into the mid 40's can qualify.
The $1,200/mo student loan payment is included in the total DTI calculation. So for example if your income was $8,000/mo and the mortgage payment was $2,500/mo that would make your housing DTI 31.25%, and then including your $1,200/mo student loan would make your total DTI 46.25%.
If your wife's overseas income is being reported on your U.S. tax returns then it is very likely it can be used to qualify. If it's not being reported then it cannot qualify.
If you are qualifying for a conventional loan then the debt to income (DTI) ratio limit will be 45% with most lenders (if you have 20% down), if it's less than 20% down then 43% will be the DTI limit due to requiring mortgage insurance.
FHA financing prefers a DTI limit of 43% for everything, and 31% for the housing portion, however if your credit is strong, your down payment is more than 3.5% of the sales price, or you would have plenty of money leftover after purchasing then with an automated underwriting approval (it's like a computer program) a total DTI up to the mid 50's can qualify and a housing DTI into the mid 40's can qualify.
The $1,200/mo student loan payment is included in the total DTI calculation. So for example if your income was $8,000/mo and the mortgage payment was $2,500/mo that would make your housing DTI 31.25%, and then including your $1,200/mo student loan would make your total DTI 46.25%.
If your wife's overseas income is being reported on your U.S. tax returns then it is very likely it can be used to qualify. If it's not being reported then it cannot qualify.
Hi Shane,
Thanks for the detail reply. So in this case, my DTI ratio would fluctuate and decline in 8 years when I pay off my $1200/month student loan. Will the lender still use the current DTI, even though in 8 years, it would go down?
Also, can I add my annual bonus or stock grants as part of the "gross income"? My employer has a pretty steady, consistant annual bonus plan and I've been receiving about 10% each year.
-Johnny
Thanks for the detail reply. So in this case, my DTI ratio would fluctuate and decline in 8 years when I pay off my $1200/month student loan. Will the lender still use the current DTI, even though in 8 years, it would go down?
Also, can I add my annual bonus or stock grants as part of the "gross income"? My employer has a pretty steady, consistant annual bonus plan and I've been receiving about 10% each year.
-Johnny
Hi Johnny,
You are welcome. Even if the student loan payments were to fluctuate over time (it sounds like you may be on a graduated payment plan) underwriting will use the current payment amount. They don't use the projected, lower amount, or even none at all, because you are still paying the $1,200/mo today. The only time they wouldn't count it is if it was deferred for 12 months after you close and you were also using FHA financing, conventional financing will always include the student loan payment even if it is deferred though.
If your bonus income has been received for the past 2 years and is likely to continue then it can be included in the qualifying amount. Stock grants could be used as qualifying assets/reserves, but usually cannot be used as qualifying income since the value of those stocks fluctuates. The dividends you receive from the stock grants (which is often corporate stock) can be used to qualify if there is a two-year history of receipt and is expected to continue to be received for the next three years. This income must be averaged over the last two years.
You are welcome. Even if the student loan payments were to fluctuate over time (it sounds like you may be on a graduated payment plan) underwriting will use the current payment amount. They don't use the projected, lower amount, or even none at all, because you are still paying the $1,200/mo today. The only time they wouldn't count it is if it was deferred for 12 months after you close and you were also using FHA financing, conventional financing will always include the student loan payment even if it is deferred though.
If your bonus income has been received for the past 2 years and is likely to continue then it can be included in the qualifying amount. Stock grants could be used as qualifying assets/reserves, but usually cannot be used as qualifying income since the value of those stocks fluctuates. The dividends you receive from the stock grants (which is often corporate stock) can be used to qualify if there is a two-year history of receipt and is expected to continue to be received for the next three years. This income must be averaged over the last two years.