Things You'll Need:
- Calculator
- Paper
- Pencil
- Knowledge of how much money you make per hour
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Step 1
The bank will evaluate potential customers on 3 general categories. Stability, Ability, and Willingness. Stability has to do with Job Time. Typically they want 2 years in the same job or 3 years in the same industry. Look at how much job time you can prove. People that jump from job to job to frequently are considered high credit risks. Next is ABILITY.
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Step 2
First off for ability we need to find out your gross weekly income. Take the hourly rate that you make, and multiply it by the number of hours you work in a week. ($15.00 X 40 = $600.00, this is the gross weekly amount) If there is a co applicant, do the same for them.
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Step 3
Next, take the gross weekly amount and multiply by 4.33. (Example $600 X 4.33 = $2598) This is what the bank considers your gross monthly income. They will use this for the next qualification requirement of Ability.
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Step 4
Take the Gross Monthly amount and multiply by 45%. This will give you the Debt to Income Ratio (DTI) that most banks are familiar with. (Example $2598 X 45% = $1169.10) This is the amount of credit related debt you can have. Take all credit cards, loans, car payments, and subtract the amount from the $1169.10. Remember: only credit related bills will be deducted. Only bills that hit your credit report.
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Step 5
Next lets look at Payment to Income (PTI). Take the Gross Monthly Income and multiply by 31%. (Example $2598 X 31% = $805.38) The bank uses the LESSER amount of the DTI and PTI ratios. They say this is the most house payment that you can qualify for.
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Step 6
Finally is willingness. Typically the banks are looking for a credit score of 620 or higher, but some programs (like FHA) can accept credit scores as low as 550. What you want to get is a credit report, and evaluate how your history of paying bills looks. Ask yourself, if I were a loan officer, would I lend money to this person. A few small dings will be ok. The bank will ask for letters of explanations, but major derogs like repos, foreclosures, and many collections will need credit repair. There are several agencies that can aid with this, and you may have to search one out. One website that can help is www.myhowtobuy.com.
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Step 7
Finally you can put it all together. Banks like to see 2 years at the same job, or 3 years in the same industry. They will take the lesser of the DTI or PTI ratio as your maximum house payment. Lastly they will look at the credit report. 620 is a rule, but there are exceptions to the score, don't be afraid to ask. If you look at these items, you should be on your way to the next process which is getting the loan process complete.
