Monthly Mortgage Payment: Housing Payments

There are two types of debt to income ratios when it comes to debt to ratio requirements.  The first is front end debt to income ratios and the second is back end debt to income ratios.  The front end debt to income ratios is also known as the housing expenses debt to income ratios which is the sum of the mortgage interest and principal payments, monthly property taxes, mortgage insurance premium, homeowners insurance, and homeowners association dues, if any divided by the borrower’s gross monthly income.

Automated Underwriting System Approval

To get an automated approval by the Automated Underwriting System, the front end debt to income ratio cannot exceed 46.9%.    Monthly utility payments, cable bills, internet bills, water bills, and other bills are not included in qualifying for the front end debt to income ratios.  The back end debt to income ratios are the sum of the total housing payment plus all other monthly payments such as automobile payments, credit card payments, student loan payments, and other monthly minimum credit payments divided by the borrower’s gross monthly income.

Importance Of Debt To Income Ratios

To get an automated approval per the Automated Underwriting System, your maximum back end debt to income ratios cannot exceed 56.9%.  However, there is a big difference between what mortgage loan you qualify for and what you can comfortably afford.

Monthly Mortgage Payment: Qualifying Versus Affording

A mortgage lender will qualify you for the maximum monthly mortgage payment you qualify for under your income and credit profile.  However, can you afford the monthly mortgage payment your mortgage lender qualifies you for?  Remember that your mortgage lender is not taking into account the full monthly mortgage payment of your housing expenses such as water bills, electric bills, gas bills, internet bills, cable bills, landscaping bills, and other monthly maintenace bills.  You also need to consider other monthly expenses such as entertainment, groceries, children’s extra curricular activity expenses, and other expenses that mortgage lenders did not use.   Homeownership is the American Dream and the purpose of being a homeowner is to enjoy it and make life comfortable for you and your family.  This will not be the case if you have to spend every extra dollar into paying your home’s monthly mortgage payment.

Mortgage Payment: Need To Consider Reserves

Homeowners also are responsible for maintenance and repairs for their own homes.  Mortgage lenders do not make reserves as a mandatory requirement but unexpected repairs do come up and some of these repairs can be extremely costly.  We are currently experiencing severe weather in the Midwest and East Coast where temperatures are at sub zero.  Many homeowners are experiencing plumbing issues and heating issues.  If your furnace goes out, costs can be very high, sometimes more than a thousand dollars.  Frozen pipes bursting is another issue homeowners are going through right now due to the extreme severe weather.  Some homeowners need to shell out several thousand dollars to correct these repairs.  These repairs are not covered by homeowners insurance so homeowners need to consider that just because you qualify for a mortgage loan does not mean that you can comfortably afford it.  Affordibility is your call and no mortgage lender will tell you whether you can afford it or not.  They will just qualify you for the mortgage loan you request for and if you meet the mortgage lender’s underwriting guidelines, you will get approved.  Please consider your overall finances including reserves before you accept and go through your mortgage loan to see whether your mortgage payment will not be stressing you and your family.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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