What you need to think about before applying and trying to qualify for a mortgage is your debt to income ratio. Lenders look at this before anything else and it plays a major factor in whether or not they will approve you. What is a debt to income you ask? It's basically the percent of your monthly gross income you have to spend on debt, before taxes. There are two kinds of debt to income ratios and they can be broken down into two areas. The first major area known as the front ratio include costs for housing on a monthly basis. Some examples of this can be taxes, insurance, interest, principal and home owner's association fees. The second major area known as the back ratio includes but is not limited to your consumer debt which includes credit card debts, legal judgments, alimony payments, car payments, child support payments, installment debt and student loans. Another thing that often hampers one's success when applying for a mortgage loan is people often think they can afford a new car payment beforehand.
The smart thing to do is always wait on that new car until after qualifying for and buying the house. Mortgage companies go by strict guidelines when approving or denying mortgages so even if you think you can afford that new car, they may totally disagree with you. If you are shoveling out money each month for an auto loan the amount that you will be approved for a home loan will drastically decrease and could even prevent you from getting approved at all. While it may not always be the case its still better to put off buying a car until you find out what your approved for. So overall your debt-to-ratios will play a huge factor in the final outcome of how much you will pre-qualify for.
Searching for the right home in the perfect place? Chances are you'll want to check here first.
Gary Allalouf- RA
Hawaii Realty International
Hawaii Mortgage Basics