real estate finance - full book (500 pgs)

Therefore they are longterm debts he has a personal

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Unformatted text preview: professionals have used the formula for the amount of loan a person or family can qualify for as approximately 2.5 times the annual salary. No reference was made to the amount of debts that the person or family had, or how much of the income was used to satisfy those obligations. Today, there are no hard and fast rules used by all conventional lenders to establish ratios of housing cost to income and long–term debts to income. The ratios used by VA and FHA are used by all lenders for underwriting loans either insured by FHA or guaranteed by VA. If your buyer is going to apply for either a loan insured by FHA or guaranteed by VA, you should be able to show your buyer the method for income and debt analysis and be able to determine the approximate loan amount he or she will be able to repay, based on the information he or she supplied. INCOME RATIOS Lenders use the monthly payment on a property in determining a borrower's qualifications. The payment includes principal, interest, property taxes, and insurance– commonly referred to as PITl. Even if the borrowers are paying their own taxes and insurance, the lender adds them all together in qualifying the borrowers. For FHA, Mutual Mortgage Insurance (MMI) is also included. For condos and PUDs, lenders also include homeowner dues or assessments (PITI). Lenders use ratios in qualifying a borrower's income. For example, the lender may say the monthly payment cannot exceed 25% of the borrower's gross income. Income ratios used by lenders vary. Today, in many areas of California, borrowers pay about one third or more of their income for housing. The ratios a lender uses are a matter of policy; however, most conventional lenders are strongly influenced by the standards set by Fannie Mae and Freddie Mac. Conventional lenders want to make loans that are saleable in the secondary market. Since these two agencies are the main secondary market sources, many lenders use their income ratio standards. The current published qualifying income rat...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.

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