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.
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.