This is a do-it-yourself guide to pre-qualification. Following the ACID® Test http://bit.ly/2sIgDVm assets, credit, income and down payment, must all be good to qualify for a loan. We are going to focus on the credit and income portions of this test, by looking at the debt-to-income ratio.
Generally, this ratio must be at 43% or lower to get approved. It is calculated by taking your monthly debts and dividing it by your monthly income. Debts include items such as car loans, student loans, minimum payments on credit cards balances, and the mortgage payment. Debts do not include utilities or cell phone bills. The total amount of the monthly debts is divided by your monthly income. Income can be salary, social security, pension, interest and dividends, or investments you may have in partnerships or corporations. If you are self-employed, your annual net income will be used. Once you total your annual income, divide the result by 12. Now take your monthly debts and divide them by your monthly income. This will get you the debt-to-income ratio.
This is a simplified calculation, but it may help you determine what you can afford. If you are having trouble calculating this ratio, or want some help, contact us.
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