Question About Monthly Mortgage Payment

by Mike
(Tempe, AZ, usa)

I have two questions. Question No. 1: I want to purchase a home and I qualify as a first-time buyer entitled to the tax credit. If the purchase price is $67,000.00 and I put down $500.00, with my total monthly obligation being approx. $450.00 (mortgage, taxes and ins.), what is the minimum monthly disposable income I must make to qualify for the loan?

Put another way, is there a debt to disposable income ratio that I must meet?

I'm thinking of the old rule of thumb concept that one's cost of mortgage or rent should not exceed 25% of disposable income and wondering, what with all the foreclosures caused by lenders approving loans to people where their mortgage obligation was so great a percentage of their disposable income that they ended up in foreclosure because most of us will spend money to eat before paying our mortgage.

Is there a fixed ratio one must meet or is there only a guideline with the potential lender having some leeway?

Question No. 2: Since my intended purchase will be by February 15, 2010 (provided I obtain the loan) when I submit my loan application.

I have to submit income tax returns with it. Is there a requirement that I have to submit at least two most previous years' returns or just one. And, Regardless of whether its one or two, does one of them have to be 2009 since I would be purchasing in 2010.

===ANSWER===

Hello Mike;

Good questions, thanks for asking. I will address each one for you.

QUESTION #1 The DTI or Debt to Income ratio varies from lender to lender. But I will use the FHA home loan as a guideline since many first time home buyers get a FHA home loan.

The DTI for FHA is 29/41. What this means is the maximum house payment including PITI (Principal - Interest - Taxes - Insurance) is 29% of your gross income.

So, to use your example of a monthly payment of $450 you need monthly gross income of $1550 a month.

Now keep in mind this is your gross income before taxes. Your maximum debt is $635.50 or 41% of your gross monthly income.

So the difference of $185.50 can go towards other term loans or credit cards.

I suggest you visit my mortgage calculator page to play around with how much you afford. It's real easy to use and it may help you out.

Here's the link Mortgage Qualification Calculator

QUESTION #2 You will be required to submit the past 2 years of tax returns. If your return for 2009 is already done then that would be one and the other would be your 2008 return.

However, since you have until April 15, 2010 to file your 2009 return, and if you did not have it available right now, then they would ask for your 2007 and 2008 returns.

There is no way I can see a lender that will only require one tax return.

You should be looking at the
FHA home loan since right now it is the best option.

The underwriting guidelines are changing in 2010 since they have become the loan of choice and it will be a little harder to qualify for the FHA loan.

Don't delay, it's a great time to buy.

I hope this helps you out.

Best Regards,

Jeff Ragan