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Colorado mortgage approval ratios are a key part of the underwriting process
that determines if a loan is approved. Approval ratios determine payment ability, one of
two main keys in determining whether or not a loan is approved. Essentially, a ratio is
realized by using a person or family's gross monthly income and estimating two key
componenets, the housing ratio and the debt ratio.
The first ratio, the housing or front end ratio, is figured by taking your
gross monthly income and muliplying by an accepted percentage. That percentage is 28%
or (.28). To determine your maximum payment for a house, please use the following
formula. The second ratio or debt ratios takes into account your mortgage payment plus all other bills paid out in a month. Debt such as credit cards, car notes, student loans, etc are taken into account. The minimum payment amounts per month are used. However, items such as gas, electric, water, etc are NOT figured into the equation. The percentage that is used for this equation is 36% or .36. Now that the two ratios are established, you must look at the "extras" that are also incorporated. First, the maximum housing ratio payment also takes into account additional items that involved in purchasing a home. Items such as monthly hazard insurance payments, private mortgage insurance payments, HOA fees etc. These items should be subtracted from the housing payment to determine the principal and interest payment. The following illustration show this: A final item that should be mentioned is that many times a person's debt greatly effects the final underwriting approval. Quite often, a front end ratio is established and the back in ratio comes in high because of large monthly debt payments. In these cases, the housing ratio (mortgage payment) is reduced to compensate until the debt ratio falls within guidelines.
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