BUYING TIPS: MORTGAGE QUALIFYING
GUIDELINES
The calculations used in underwriting and prequalifying for a potential mortgage are
outlined below. They represent conservative qualifying criteria used by most financial
institutions.
THE FRONT RATIO:
Usually, this number cannot exceed 33% of the
monthly gross income. The best way to determine this is as follows:
INCOME ANALYSIS:
Add the following and divide by 12 for Gross Monthly Income (GMI)
Gross annual salary
Average two year bonus
Average two year commissions
HOUSING COST ANALYSIS - (PITI):
Add the following and divide by GMI to calculate the FRONT
RATIO
Principal & Interest (Use Online
Calculator)
Taxes (per Month)
Insurance - 4% of Loan Amount
THE BACK RATIO:
Usually, this number cannot exceed 38% of the
total gross monthly income. To determine this ratio:
Take the total housing costs figure and add any other monthly debt payments including
other real estate loans, credit card and other installment loan payments, alimony, child
support, child care, etc.
Total housing + other debt + GMI = Back Ratio
Given the many issues involved in determining the debt service, such as self-employment,
credit and assets, it may be helpful to use the services of a lender to expedite the
pre-qualification process. Fall River Real Estate works with many area lenders who can
offer a competitive quote at no cost to you.
SPECIFIC GUIDELINES:
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