3855.827.3466
public records check.
Regardless of where a credit account was opened, your name and the account information should ap-
pear in the credit bureau report. If you have no credit history, this does not mean you will be turned
down for a mortgage. A combination of other factors in your application may compensate for your lack
of a traditional credit history.
If you have an unsatisfactory credit history because of a catastrophic life event but wish to be consid-
ered for a loan, you will be required to submit a detailed written explanation of why you have had credit
problems and what has been done or is being done to correct them. is does not assure you that your
mortgage will be approved; however, the explanation will be considered in the credit decision.
Aordability
You must qualify for the loan in terms of your income as it relates to your outstanding monthly obliga-
tions. Your lender will calculate the percentage of gross monthly income required for monthly mortgage
payments (housing expense ratio) and the percentage of gross monthly income required for the pay-
ment of all debts (total expense ratio). ese calculations are called “underwriting ratios.”
HOUSING EXPENSE RATIO—includes the monthly mortgage principal and interest payment, one-
twelh of the annual payment for the property taxes, one-twelh of the annual payment for the home-
owner’s insurance and, if applicable, one-twelh of the annual payment for private mortgage insurance
(for further explanation of private mortgage insurance, see “Mortgage Categories” section on page 10).
e total of these items divided by your gross monthly income may not exceed 33 percent for a con-
ventional loan, 31 percent for an FHA-insured or a loan guaranteed by Rural Development (RD), or 41
percent for a VA-guaranteed loan.
TOTAL EXPENSE RATIO—includes the housing expense as detailed above, plus the monthly payments
of any obligations you may have such as installment loans, revolving charges (VISA, MasterCard, etc.),
child support payments, etc. e total of these divided by your gross monthly income may not exceed
38 percent for a conventional loan, 43 percent for an FHA-insured or RD-guaranteed loan, or 41 percent
for a VA-guaranteed loan.
Your lender will be able to tell you at the mortgage interview exactly which debts must be included in
the calculation of the underwriting ratios.
ere is a way in which you can approximate the maximum price you can aord. You must rst calcu-
late your gross monthly income as follows: (1) if you are paid by the hour, take your hourly rate times
40 hours per week (or the actual number of hours you work if it diers from 40 hours) times 52 weeks
in a year divided by 12; (2) if you are paid weekly, take your weekly gross pay times 52 divided by 12; (3)
if you are paid bi-weekly (every two weeks), take your biweekly gross pay times 26 divided by 12; (4) if
you are paid semi-monthly (two times a month), take your semi-monthly gross pay times 2; (5) if you
are paid a monthly wage, simply use the gross pay from any current month; (6) if you are paid an annual
salary, simply divide by 12.
For example, let’s use a family earning $48,000 per year or $4,000 per month.
Total Monthly Expense Limit is 38 percent (maximum) of $4,000 = $1,520.
From this “Total Monthly Expense” Limit of $1,520, deduct the family’s monthly obligations, the aver-
age monthly property tax escrow for the area where they plan to buy their home, the estimated monthly
escrow for the homeowner’s insurance, and an estimated monthly escrow for payment of private mort-
gage insurance (required if the downpayment is less than 20 percent of the purchase price).