How is the preapproval amount determined?

[nish129]

Is there a formula or something? My husband and I are looking to buy a new home in 2010, but the houses that we want are between 400K and 500k. I'm not sure if we would even qualify for that much house. Does any one know about how much our incomes need to be and/or what things we should do now to help us in 2010? Thanks for any advice

[Anonymous]

Try:

www.bankrate.com/brm/calculators/mortgages.asp

[DallasLoanGuy]

Debt ratios can be higher than published guidelines with strong credit and/or cash reserves. So there is really no way to speculate.

The automated underwriting engine spits out an approval or not.

The loan officer can run lots of scenarios though 

[ShanetheMortgageMan]

Generally no more than 31% of your total monthly gross income should be spent on the housing payment - this includes the principal & interest payment, homeowners insurance, property taxes, homeowners insurance, and if applicable, mortgage insurance too.  You take your total monthly housing payment & divide it by the total gross monthly income.

The total debt to income (DTI) ratio shouldn't be more than 43%, and that would include the housing payment + minimum payments on items such as auto loans, credit cards, personal loans, student loans, alimony, child support, etc.  It doesn't include payments on borrowed funds secured by liquid assets, such as a 401k or life insurance loan.  You take your total monthly debt payment & divide it by the total gross monthly income.

Questions that a loan officer would need answers to would be:

Have you planned on any down payment? 

What payment level are you comfortable with on a new home? 

How much do you pay in rent now?

If the payment on the house is more than your current rent, are you prepared for the increased expense?

What is your credit like?

How much is your monthly income?
How long have you and your husband been working at your jobs for?

What are your monthly minimum payments on credit items including in the DTI?

How much in reserves (savings/checking, 401k, 403b, IRA, etc.) do you have?  If the DTI is higher than the 31/43% preferred level, compensating factors such as having reserves available after closing could very well be what is needed to get approved.  Other compensating factors would be more than the minimum required down payment, having good to excellent credit, long time on the job, not much of a change in housing payment, to name a few.

Where are you buying?  This is important if you go over a $417k loan amount with conventional financing, or if FHA financing might be a better route than conventional.  Higher cost areas such as California, Alaska, Hawaii, NYC, Boston, Seattle, DC, etc. have higher conforming & FHA loan amounts than lower cost areas such as Texas, Kansas, Kentucky, etc.