Allied Home Mortgage...

For most loans there are two different ratios involved:

1. The ratio of your monthly house payment to your total income, and
2. The ratio of your monthly house payment plus debt payments to your total income.

Step 1: Total your income

The income to be counted is your gross pay before taxes or deductions for "cafeteria" plans, insurance, or retirement plans. Overtime may be included but it must be averaged over 2 years and be regular. Bonuses may also be included, but again, they must be averaged and expected to continue. Your employer may be asked to verify these items.

Child support that you receive may also be added to your income provided that you have received it regularly for the past year and expect to receive it for the next 5 years.

Income from investments may be added however, there are some limitations on income you receive from rental property you own. If you are making payments on the rental property or other investments, this must be counted as debt expense below.

It is usually easiest to figure the income on an annual basis. The total annual income should then be divided by 12 to arrive at a monthly income.

Total Monthly Income equals:$_______________ (A)

Step 2: Total your monthly debt

Expenses to include in your monthly debt: car payments, installment loans, minimum monthly payments on credit cards, student loan payments, monthly payments on rental property, child support that you are required to pay, and alimony that you are required to pay. For an installment credit card (not American Express or gas cards) that has a zero balance, a charge of $15 per month should be listed.

In the case of VA loans you are required to include child care expenses that you pay so that you may work.

You do not include life insurance premiums, health insurance premiums, money that you voluntarily give to a former spouse, or contributions to savings plans.

Step 3: Figure your maximum house payment from lower ratio (skip this step for VA loans)

Monthly Income (A): $______________

Times the "low" ratio: X____________% (29% for FHA, 28% for Conv, 33% for CHB or 20% down conv.--see "Types of Loans" for additional ratio information)

Step 4: Figure your maximum house payment from the higher ratio (applies to all types of loans)

Monthly Income (A): $_______________

Times the "high" ratio: X____________% (41% for FHA and VA, 36% for Conventional)

Equals total allowed debt: $_______________

Equals second house payment: $_______________ (D)

Step 5: Select the lower of (C) or (D)

In the case of VA loans there is only one ratio (step 4). The lower allowed payment from step 3 (C) or step 4 (D) will be your maximum allowed house payment. For VA loans, however, there is the additional requirement that there be enough money left over after total debt for the family to live. This is referred to as the "residual" and the VA publishes charts for their requirements.

These ratios may sometimes be adjusted upward (or downward) due to other circumstances. For a more thorough analysis plus a review of your credit history, complete the Pre-Approval Application contained elsewhere on this site or contact Sandi Young at  (210) 279-6340 / (210) 493-8900 or E-mail Sandi@Alamoliving.com.