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How Much Can You Borrow?
How do banks decide how much money to lend you in Temecula, Murrieta and all of Riverside County California? They base their decision on their estimate of your ability to repay the loan.

To make this estimate, they look at your income, your available cash, your debt, your credit history and your Loan To Value.

Riverside County’s updated lending limits for FHA will also play a key factor in determining the type of program and how much you can borrow. The new limits in Riverside County for a Single Family Residence is now $355,350, down from the Temporary Limits in 2008 of $500,000.

There are two debt-to-income ratios that banks check based on the information you provide on your loan application.

Front-End Ratio
First, they check to see how much of your income would go toward the mortgage payment. This is called the front-end ratio.

Their guideline is that your total payment, including principal, interest, and escrow payments, should not be more than 31% of your gross (pre-tax) monthly salary; however lenders do go beyond this figure with compensating factors like additional assets or an elevated credit score.

To calculate this for yourself, take your annual salary and multiply it by .31, then divide it by 12. This number is your maximum total mortgage payment per month.

Back-End Ratio
Banks also check how much of your gross income is required to pay all of your debts combined. This is called your back-end ratio and includes the mortgage as well as car payments, credit card payments, student loans, and child support and alimony payments.

Their guideline for this ratio is that your total debt payments should not be more than 43% of your gross income; however, I’ve seen this figure reach as high as 57% again with compensating factors.

To calculate this for yourself, take your annual salary and multiply it by .43, then divide it by 12. This is the maximum allowable amount of your total monthly debt payments.

Don’t Be House Poor
Be cautious with these numbers however. Just because the bank says they are willing to lend you a certain amount, doesn’t mean you need to borrow that amount!

Instead, consider your own budget and lifestyle, and make sure you don’t end up with such a high mortgage payment that you can’t put money away for retirement, go for a nice vacation, or even go out to eat.

Some debt counselors recommend that your total payment should not be more than 31% of your net pay (after taxes), leaving you money for a comfortable lifestyle as well as the other costs of home ownership, such as repairs, maintenance, and higher utility bills.

What Documentation Do You Need

1. Two Years W2 and the Most Recent 30 Days of Pay Stubs
2. Tax Returns needed for self-employed borrowers, borrowers with rental income and borrowers using commission income to qualify.
3. Two months full bank statements. Must be “official” statements (no online snapshots are allowed) and must include ALL pages.
4. Most recent statements for retirement and investment accounts (again all pages).
5. Legible Color copy of Driver’s License and Social Security Card.
6. Credit explanation letters, bankruptcy papers, divorce decrees, child support documentation, leases on rental properties, etc are required if applicable.

Watch this short video if you are a California W2 Employee and watch this short video if you are a California Self Employed borrower.

Since Temecula/Murrieta Mortgage Rates also influence your monthly payment, it is important to pay attention to the market.

Schedule a strategy session with a Temecula/Murrieta FHA Mortgage Expert by phone or at our office to discuss the best lending solution for you and your family.

Other Valuable Articles:

How a Streamline 203k Works

Why You Should Rent and Pay My Mortgage

FHA Credit Issues Explained

Jonas Kruckeberg Your Mortgage Planner First Priority Financial Temecula, CA	Work: 951-506-4663 jonas@jonasloans.com http://www.jonasloans.com
FHA Loans Expert
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