Comments on: Why are mortgage loans based on a Gross income instead of my Net? http://www.mortgage--loans--blog.com/uncategorized/why-are-mortgage-loans-based-on-a-gross-income-instead-of-my-net A blog on mortgage loans Wed, 08 Feb 2012 22:58:25 +0000 http://wordpress.org/?v=2.7 hourly 1 By: Dustin S http://www.mortgage--loans--blog.com/uncategorized/why-are-mortgage-loans-based-on-a-gross-income-instead-of-my-net/comment-page-1#comment-147 Dustin S Fri, 05 Dec 2008 11:53:20 +0000 http://mortgage--loans--blog.com/renting-real-estate/why-are-mortgage-loans-based-on-a-gross-income-instead-of-my-net/#comment-147 People do have different tax exemptions then others but banks do look at what is called disposable income when underwriting the loan. Disposable income is what you have left over. Also the automated underwriting systems, that almost all lenders use, do the same. For instance you have on your application 2 dependents ages 6 and 10 and the application does not show child support payments. The underwriter will want to know if child support payments are required by the other parent and if so you can gross that income up 25% because its non-taxable. So they do look at disposable income when underwriting the loan because you need to demonstrate the capacity to repay your mortgage. Now most of this is done by automated underwriting engines that have built in risk models designed around three areas of lending also called risk layering. Those are income, assets, and credit. What do you make? How much do you keep in savings, investements, and reserves? And how well do you pay your obligation?. Lenders use ratios, called debt-to-income ratios, to determine the risk layering involved in making a loan decision. If you have a high debt ratio but have 30 months of mortgage payments, also called reserves, in the bank and a good credit score you could compensate for the high debt ratio because you have money in the bank should something happen. Everything revolves around risk and historical data when tweeking these automated systems. I've seen someone with a 60% debt ratio, which is extremely high, get approved but they had enough money in the bank to pay cash. No two people or loan are the same. Make it a great day! People do have different tax exemptions then others but banks do look at what is called disposable income when underwriting the loan. Disposable income is what you have left over. Also the automated underwriting systems, that almost all lenders use, do the same. For instance you have on your application 2 dependents ages 6 and 10 and the application does not show child support payments. The underwriter will want to know if child support payments are required by the other parent and if so you can gross that income up 25% because its non-taxable.

So they do look at disposable income when underwriting the loan because you need to demonstrate the capacity to repay your mortgage. Now most of this is done by automated underwriting engines that have built in risk models designed around three areas of lending also called risk layering. Those are income, assets, and credit. What do you make? How much do you keep in savings, investements, and reserves? And how well do you pay your obligation?.

Lenders use ratios, called debt-to-income ratios, to determine the risk layering involved in making a loan decision. If you have a high debt ratio but have 30 months of mortgage payments, also called reserves, in the bank and a good credit score you could compensate for the high debt ratio because you have money in the bank should something happen. Everything revolves around risk and historical data when tweeking these automated systems. I’ve seen someone with a 60% debt ratio, which is extremely high, get approved but they had enough money in the bank to pay cash. No two people or loan are the same.

Make it a great day!

]]> By: beached42 http://www.mortgage--loans--blog.com/uncategorized/why-are-mortgage-loans-based-on-a-gross-income-instead-of-my-net/comment-page-1#comment-146 beached42 Thu, 04 Dec 2008 22:32:28 +0000 http://mortgage--loans--blog.com/renting-real-estate/why-are-mortgage-loans-based-on-a-gross-income-instead-of-my-net/#comment-146 It is for simplicity. Because of different status, exemptions, insurances, retirements plans, etc. two people have the same gross but have very different nets. They estimate taxes and other aspects of spending to determine what loan you can afford. It is for simplicity. Because of different status, exemptions, insurances, retirements plans, etc. two people have the same gross but have very different nets.

They estimate taxes and other aspects of spending to determine what loan you can afford.

]]> By: bull_rooster_aardvark http://www.mortgage--loans--blog.com/uncategorized/why-are-mortgage-loans-based-on-a-gross-income-instead-of-my-net/comment-page-1#comment-145 bull_rooster_aardvark Tue, 02 Dec 2008 14:11:54 +0000 http://mortgage--loans--blog.com/renting-real-estate/why-are-mortgage-loans-based-on-a-gross-income-instead-of-my-net/#comment-145 The bank isn't going to attempt how your net is adjusted by taxes (will you get money back or pay more) and you can change your net by simply telling your HR department you want to take more deductions - you'll have to pay the money back at tax time (if you took to many) but if the short run your net will be higher than it should be. The bank isn’t going to attempt how your net is adjusted by taxes (will you get money back or pay more) and you can change your net by simply telling your HR department you want to take more deductions - you’ll have to pay the money back at tax time (if you took to many) but if the short run your net will be higher than it should be.

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