When an underwriter for the mortgage company prequalifies you, he works backwards to figure your maximum mortgage amount. You can do the same thing. Salt Lake Homes recommends the first step is to determine your monthly income. It isn’t quite as easy as it sounds. Lenders only count income they can document through paperwork.
If you are a salaried employee, and don’t earn bonuses, it’s easy. Get out your paycheck. If you get paid twice a month, multiply by two. If you are paid every two weeks, then you multiply by 26 (the number of pay periods in a year) and divide by twelve. Unless you’re a teacher. Teachers don’t always work year round and they have special rules.
If you are an hourly employee who works a straight forty hours a week and don’t earn overtime income, then it’s easy, too. Look at your paycheck, multiply your hourly rate by 40, multiply that total by 52, then divide by twelve.
If you earn overtime, bonuses, or commissions Salt Lake Homes says — it isn’t as easy. Lenders don’t give you credit for what you are currently earning. They average your income from those sources over the last two years, then add that to your regular salary or hourly monthly income. If you want a shortcut that is usually close, get out your W2 forms for the last two years. Add them together and divide by twenty-four. That is your monthly income.
If you are a teacher, a nurse, a seasonal employee, in construction, or earn only part-time income — you can use that shortcut, too. Add the figures from your last two years W2′s, then divide by 24. It generally gets you close.
If you are self-employed or receive 1099 income, then you need a two-year track record. Lenders go by what you declare to the IRS as income, since that is documentable. Since some self-employed people overstate their expenses, this may understate your income. Look at the Schedule C of your tax returns for the last two years and the number at the bottom that says “profit” is your annual income. You can add any depreciation to that figure. Add them together and divide by twenty-four.
Salt Lake Homes says there are variations and exceptions (like those who own their own corporations) but the above should cover most people.

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This is often the question homes buyers ask themselves, How much house can I afford.  Salt Lake Homes has put together these guidelines to remember.

To determine your maximum amount you can borrow, lenders use guidelines called debt-to-income ratios. This is simply the percentage of your monthly gross income (before taxes) that is used to pay your monthly debts. Because there are two calculations, there is a “front” ratio and a “back” ratio and they are generally written in the following format: 33/38.

The front ratio is the percentage of your monthly gross income (before taxes) that is used to pay your housing costs, including principal, interest, taxes, insurance, mortgage insurance (when applicable) and homeowners association fees (when applicable). The back ratio is the same thing, only it also includes your monthly consumer debt. Consumer debt can be car payments, credit card debt, installment, and similar related expenses. Auto or life insurance is not considered a debt.

A common guideline for debt-to-income ratios is 33/38. A borrower’s housing costs consume thirty-three percent of their monthly income. Add their monthly consumer debt to the housing costs, and it should take no more than thirty-eight percent of their monthly income to meet those obligations.

Salt Lake Homes also reminds you guidelines are just guidelines and they are flexible. If you make a small down payment, the guidelines are more rigid. If you have marginal credit, the guidelines are more rigid. If you make a larger down payment or have sterling credit, the guidelines are less rigid. The guidelines also vary according to loan program.

FHA guidelines state that a 29/41 qualifying ratio is acceptable. VA guidelines do not have a front ratio at all, but the guideline for the back ratio is 41.

Example: If you make $5000 a month, with 33/38 qualifying ratio guidelines, your maximum monthly housing cost should be around $1650. Including your consumer debt, your monthly housing and credit expenditures should be around $1900 as a maximum.

Salt Lake Homes hopes this information is helpful in your search for that new home.

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Buying a home can be a complex process, but Salt Lake Home believes it doesn’t have to be. With a little preparation, you can save a lot of time and hassle by having all of your documents ready when your mortgage professional needs them.

To start with, the lender will need personal information to verify employment for you and your co-borrower (if there is one). They will also need information regarding all of your debts
and assets.

In order to expedite the paperwork process Salt Lake Homes recommends you start gathering the following items:

·Most recent paystubs for one month.
· W2s from the last two years.
· Copies of your last two years’ tax returns, including all schedules that were filed.
· If you are self-employed, a year-to-date profit and loss statement.
· Homeowner’s insurance company name and number.
· Most recent bank statements for two months.
· Most recent statements from any retirement and investment accounts for two months.

What costs are involved?
Within 3 days of your application, your Loan Officer must provide you with a good faith estimate of closing costs. Along with any down payment, you will have to pay closing costs as well. This is a brief rundown of some of the fees that could be associated with your new mortgage:

• Application/Processing Fee – Charged by the loan officer to process your loan application.

• Appraisal Fee – Charged by the appraiser to determine the current value of the property.

• Closing Fee – Charged by the closing agency (escrow, attorney, title) to ensure the close of your transaction.

• Credit Report Fee – Charged by the credit reporting agency to provide your credit report to your loan officer and/or lender.

• Title Search/Title Insurance Fees – Charged by the title company to ensure the property is free from liens or  title defects.

• Origination Fee – Paid to the originator to obtain a lower interest rate. This is usually expressed in the form of points. One point equals 1% of the loan amount.

Miscellaneous Fees – VA and FHA loans may have other fees associated with them. Private Mortgage Insurance
(PMI), document preparation, notary, recording and tax service are other fees which may fall under this category.

Salt Lake Homes knows this can be a little confusing especially to the first time buyer.  We hope we can make this process a littler less stressful.

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