Before You Purchase Your New Home
While there are exceptions to the general rule, consider your debt ratio. As professionals, we exercise alternatives most consumers may not be aware of in order to help consumers qualify. Government-insured loans (FHA) allow debt ratios up to 50%; Veterans can secure a VA loan with a debt ratio up to 41% while conventional loans are more strict with a debt ratio requirement of only 36%-38%.
To determine your debt ratio, you must add your new monthly housing expense (A) (principal, interest, taxes & insurance) + (B) your debts that appear on your credit report together = (C). Divide your monthly gross income into C and the percentage is your debt ratio.
Example: Monthly Housing expense of $2500 + monthly debt payments (appearing on your credit report), say $1500 would be a total of $4000. Divide the monthly gross income, say $8500 into the $4000 = 47%. Depending upon other factors, the buyers would meet the debt to income requirement for a government insured loan.