Qualifying Mortgage Ratios

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Qualifying Mortgage Ratios

• Lori DeWine
• University of Phoenix Online
• MADL 117C - EDTC 560
• Applications of Multimedia and Web Page Design
• June 24, 2004

2
Target Audience

• Newly licensed real estate agents with
  preliminary knowledge of mortgage ratios
• Aged 18-80
• Both sexes
• All income levels, although predominately middle
  income
• High school graduates to those with post graduate
  education

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Why should we calculate qualifying mortgage
ratios?

• To determine
• Can they purchase?
• Are they realistic?
• What is their maximum price range?

4
Qualifying ratios

• Fannie Mae guidelines
• 28 and 36
• FHA guidelines
• 29 and 41
• VA guidelines
• 41 overall

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How do you calculate ratios?

• First, gather
• All statements of gross monthly income
• (must have been consistent for past 2
  years, and in the case of child support and
  alimony continue for the next 3 years)
• All monthly expenses with more than a 6 month
  payoff
• (daycare expenses are included with
  revolving credit, but utilities, gym
  memberships, etc. are not included in the
  calculation)

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Now for the Math

• Gross monthly income
• Divided by
• mortgage payment principle, interest, taxes and
  insurance (PITI)
• Equals
• the first number in the ratio

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The second portion of the calculation

• Gross monthly income
• Divided by
• all monthly obligations (including PITI)
• Equals
• the second number in the ratio
• (or the whole number in the case of a VA loan)

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An example

• Ted and Marys monthly income is 6,000 their
  monthly obligations are 1,200
• 28 of their monthly income is 1,680
• 36 is 2,160
• Subtracting their monthly obligations from the
  2,160 leaves 960

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So

• under Fannie Mae guidelinesalthough
• their front ratio (28) allows a payment of
• 1,680, the lowest of the two, 960, is the
• allowable total monthly mortgage payment

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Using FHA guidelines for Ted and Mary

• 29 of 6,000 is 1,740
• 41 of 6,000 is 2,460. Subtracting
• their other monthly obligations of 1,200
• leaves 1,260

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So

• under FHA guidelines their allowable
• monthly mortgage payment increases to
• 1,260, or 300 more than the first scenario

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Using VA guidelines for Ted and Mary

• In this scenario, they have just one ratio of 41
• 41 of 6,000 is 2460
• Subtracting their monthly expenses form the
  2,460 leaves 1260

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So

• 1,260 is the highest allowable mortgage
• payment amount
• This is the same payment amount as under the FHA
  guidelines

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Heres the breakdown
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Conclusion
A working knowledge of applicable ratios will
allow the real estate professional to quickly
guide the client toward the most advantageous
lending programs. By doing so, less time will
be spent with each client, and more sales will be
successfully achieved.