When you go to get approved for a loan, you know there are typical items needed from the lender. You know that, above all, you need to be gaining some sort of income.
What if your income is not from a job, but is from disability or a pension? Does this mean you are out of the home buying game?
One of the biggest factors in being approved for a home loan is something called Debt to Income ratio, or DTI. Let’s say your income to support yourself is $2000 a month – whether it is from a paycheck, payments from the government, or your pension, it is counted as income. Then, your monthly debts such as rent and any loans (personal, automobile, student, credit cards) are counted up.
With the factors in mind of how much you make versus how much you spend, your amount of disposable income that can be saved up is heavily regarded. What is the typical amount of DTI required to qualify?
“Maximum DTI depends on a number of factors,” says loan officer at Federal Home Loan Centers, Lyndsey Reimer. “Usually poor credit will mean DTI will be capped at 41 percent.”
What exactly does this mean? To use an example, if your FICO credit score was between a minimum of 580 to a score of 629 and you make $2000 a month, then you need to make sure you are saving $820 or more per month that is not spent towards monthly debts.
In terms of what is the minimum income needed for a home loan approval, since this is commonly asked of us at this office, there is unfortunately no set answer. It is dependent on the amount you want to be preapproved for, how much you make, DTI, assets, and other factors.
With USDA home loans, which are popular with consumers who have imperfect credit and don’t make a large salary, there will be income limits. While it depends on the county the applicant is living in, the acceptable amount is usually $100,000 a year or less for USDA home loans. Thankfully, with VA and USDA home loans, there is no income limit.
It truly is a case-by-case basis in terms of the income you make and what DTI will be acceptable. Your application will also be evaluated to see how big of a difference your rent will cost versus a mortgage to make sure you will not experience what is called payment shock. The only way to see if you are truly ready for a federal home loan is to formally apply.
If you are ready to get pre-approved for a federal home loan, call 877-432-LOAN(5636). You may also see what we are up to and tweet us on Twitter at @FedHomeLoan.