When we talk to a potential home buyer in Raleigh – one of the first questions we ask will be about “Who You Owe Money To.” We find that when most first time home buyers in NC try to figure out if they can qualify for a home – they add up ALL of their bills. When the Underwriter is approving your mortgage loan – they are only using “part” of the debt you have into consideration! The Debt Ratio to Buy a House in NC is generally 38%.
Each mortgage program has slightly different Debt that they “count” in the Total Debt Ratio. In general, you add all of the house payment and add the monthly debts that loan program counts and come up with a monthly total. Then you divide that total by your GROSS (before taxes) income.
House Payment: When we are counting the house payment we include the Principal and Interest, Property Taxes, Homeowner Insurance (Fire Policy), PMI and Homeowner Association Dues (HOA Dues). If you are purchasing a Townhome or a Condo – the Homeowner dues might be over $100 a month. Because of this, it’s important to keep notes about the cost for each place you look at and give us an idea what they might be.
What does NOT count in Monthly Debt: With Conventional, FHA and USDA Home Loans we do NOT count child care as a monthly debt (although many of us have seen that be one of our BIGGEST cost!). We also don’t count cell phone bills, health insurance or car payments (not lease payments) that have less than 6 months left on them. FHA does not count Deferred Student Loans.
What DOES count in Monthly Debt: Student loans count for USDA (even if they are deferred), credit card payments, car payments, lease payments for a car no matter how many months you have left. We also have to count monthly payments that you are making to pay BACK a 401K loan. If it shows up on a Paystub as a deduction (alimony for instance), if it’s court ordered, if it shows as an automatic draft payment (except for insurance and utilities) we will probably have to count it.
Credit Cards: We take a minimum of 3.5% of Credit Card Balances to calculate the payment. The Credit Report might show that you make larger payments – so we will see which number you can qualify with. In this case – we would count less than $27 a month for your credit card bills.
So let’s say you have the following profile:
New House Payment will TOTAL : $950
Monthly Debt equals:
Car Payment $220, Credit Card with with a Balance of $300, Credit Card with a balance of $450 and a student loan of $69 a month. So the total monthly debt in our example is $ 316 a month
So the total monthly debt in our example is $ 316 a month plus the House payment of $950 gives us $1266
If your GROSS Household income is $48,000 a year, that’s $4000 a month. $1266 divided by $4000 equals 31.65%. That is well below the 36% to 40% ratio we are generally trying to reach.
If you have offsetting of compensating factors – Underwriters can approve loans right now above the 40% benchmark.
Want to see how much you can qualify for, and get info on the BEST mortgage rates Available? Call Steve and Eleanor Thorne 919 649 5058 – find us on Facebook - add us to your Circles on Google + / we want to connect and find out how the housing market looks in YOUR corner of NC!