Loan Qualification Process
The loan qualification process requires documentation of income to gauge how large of a home loan the borrower can afford. In most cases, the borrower must submit two years of tax returns to determine the maximum loan qualification.
In situations where the borrower’s income spiked in the most recent year, the two-year standard might limit the loan amount that he or she can afford today.
Central Coast Lending co-owner Daniel Podesto offers a convenient shorthand for estimating buying purchasing power.
“Roughly, for every $100,000 you borrow, your mortgage payment will be $500 per month,” said Podesto.
At a 50% debt-to-income ratio – the upper limit – a buyer would need to make $12,000 per year for every $100,000 borrowed assuming no other monthly liabilities.
Consider then: a $6,000 jump in income offers another $50,000 in purchasing power.
The bottom line: moving from an income of $36,000 per year to $42,000 per year allows the borrower to move up from a loan of $300,000 to $350,000.