You Can Do It!! Part 3

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Let’s finalize our mortgage myth busting process right now.  We have previously exploded myths regarding the character and capital criteria in mortgage lending.  Now let’s deal with myths regarding your “capacity” to obtain a mortgage.

When it comes to loans, the term “capacity” is your ability to make your monthly payments.  To determine your capacity to pay your mortgage, underwriters will compare your monthly gross income (before taxes, retirement, and other deductions) to all of your monthly debt payments.  If your debt payments are not too high relative to your income, you are deemed to have sufficient capacity to obtain the loan.

A surprising percentage of people believe that if they simply have a student loan – regardless of the amount – they cannot qualify for a mortgage.  The TRUTH here is that you can still qualify for a mortgage even if you do have a student loan (or an auto loan, or an auto lease, or credit cards, or other types of debt).

The critical question here is not IF you have a student loan, instead it is, “How large are your payments relative to your income?”  Underwriters will scrutinize your “back ratio,” which is the sum of all your monthly debt payments – student loans, auto loans, the new mortgage payment on that house you want, etc. – divided by your monthly gross income.

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As long as your back ratio is not too high, say 45% or less for a conventional loan and 50% or less for a FHA loan, you will likely have your loan approved (assuming no other underwriting “issues,” of course).

So let’s summarize the mortgage myth destroying logic with this:  if your credit score is 620 or higher, and you have (or can get from relatives) enough cash for a 3% or more down payment, and if your current monthly debt payments are not excessive, and you want to buy a house, then remember, “You can do it!”

Actually, I’ll correct this as you will need help from someone licensed to originate loans, so let’s just say, “We Can Do It!”  If you dream of owning your own home in the state of Georgia, give me a call and let’s discuss your situation.  I’ll be honest and tell you what the real situation is.  Don’t believe the myths and then wait to take action.  The TRUTH is we might be able to get you into your dream home sooner than you think.

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