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How Do You Qualify for a Mortgage?
Orange County Real Estate Podcast with Alex Yu
English - April 18, 2022 00:00Education real estate for sale real estate agents top real estate agents local real estate agents find a real estate agent home selling tips home for sale home buying home buying process property finder Homepage Download Apple Podcasts Google Podcasts Overcast Castro Pocket Casts RSS feed
Here’s how you can find your debt-to-income ratio and qualify.
“What exactly does it take to qualify for a mortgage?” Interest rates are rising, and I’ve received this question a lot recently as a result. Many buyers want to find a new home before rates increase further. If you’re in that boat but don’t know what you qualify for, today I want to break down what you need to qualify for a mortgage.
If you want to find out what you can qualify for, the first thing you need to do is calculate your debt-to-income ratio. If you’re a traditional employee, your lender will use something called a gross number, which is calculated by taking your gross income and dividing it by 12. If you’re self-employed, this number is your average net income from the last two years after subtracting all your business expenses.
From here, there’s a front end and a back end. The front end consists of all the expenses associated with the property you want. So if you want to buy a home, your front end would include your mortgage payment, property taxes, HOA fees, insurance, and Mello-Roos taxes, if applicable. Typically, the front end has to be below 36% of your gross income if you’re employed or your net income if you’re self-employed.
“Your lender won’t look at your grocery bills or how much you spend on gas.”
The front end is important, but the back end might be even more so. Back-end expenses include all your scheduled and paid expenses such as car loans, credit card debt, personal loans, and student loans. Typically, this needs to be below 45% of your gross income for employees and net income for those who are self-employed.
We’re in an inflationary period right now, so it’s more important than ever to understand your budget. You may qualify for a loan, but your lender won’t look at your grocery bills or how much you spend on gas. Be careful, and make sure you purchase a property you can afford.
If you are looking to purchase a home, please call or email me. I have relationships with a few specialized lenders ready to help no matter what your situation is. I look forward to talking with you!