How Large a Mortgage Will You Qualify For?
Your income
With the help of the people who provide you with assistance, you will need to list all the income that you receive every month. Using the Budget Worksheet below, you can determine the exact amount of your income. This may include wages from work and/or public benefits such as Social Security and Medicaid Waiver funds, or any other income that you may have. If an agency receives and spends money for housing or other expenses on your behalf, an agreement can be drawn up that states that some of this money will be allocated to pay your mortgage payment. The agreement should satisfy the lenders that there are sufficient funds to make timely monthly mortgage payments.
Your expenses
As you did for income, you may want to make a list of your living expenses. This list will include all of your current costs for food, clothing, medical, transportation, entertainment, and utilities. You will need to estimate what your expenses will be after you move into your home. Having good documentation of your monthly expenses will assist you to prepare your monthly budget and to provide information to your lender.
Budget worksheet
The following budget worksheet is a good example of how to list your income and your expenses. The results will show you what amount of money you have for a mortgage payment after meeting all your other living expenses. This is the official budget worksheet used for a Fannie Mae HomeChoiceSM mortgage by borrowers whose incomes are at or below 50 percent of the median income for their area (as defined by HUD).
Fannie Mae HomeChoicesm
GROUP TWO BORROWER BUDGET WORKSHEET
(NOTE: Pages One and Two of Budget to be completed by borrower as part of homebuyer education and counseling AND verified by lender. Page Three to be completed by lender.)
Name of Borrower(s)[(borrower(s) name)]
Prepared By[(name and relationship to borrower)(Date Prepared)]
Name of Lender [(lenders name)]
Verified By
[(name and title of lender representative)(Date Verified)]
|
MONTHLY INCOME ANALYSIS |
CURRENT |
PROPOSED |
|
A. List Wage/Salary Income (GROSS) |
||
|
Total Wage/Salary Income |
(A-1) |
(A-2) |
|
B. List Benefit Income (Non-taxable) |
||
|
Total Benefit Income |
(B-1) |
(B-2) |
|
C. List Other Funds Designated Specifically for Mortgage (Attach documentation): |
||
|
Total Other Funds |
(C-1) |
(C-2) |
|
D. Total Monthly Income (A)+(B)+(C) |
(D-1) |
(D-2) |
|
E. List Other Sources of Support and Dollar Amounts or Value (these amounts may be included in income and expense analysis, but may NOT be used to calculate qualifying ratios -- also, funds available for a specific type of support that are listed as income MUST also be reflected in monthly expenses on page 2) |
||
|
Total Other Supports : |
(E-1) |
(E-2) |
|
TOTAL EFFECTIVE INCOME (D) + (E) |
(F-1) |
(F-2) |
Name of Borrower(s)[(borrower(s) name)]
Number of Persons in Household [(number of persons in household)]
|
MONTHLY EXPENSE ANALYSIS |
CURRENT |
PROPOSED |
|
G. List all living expenses: |
||
|
Food |
||
|
Household Supplies |
||
|
Utilities (gas, electric, water, sewer) |
||
|
Property maintenance/repair |
||
|
Transportation |
||
|
Telephone |
||
|
Cable Television |
||
|
Clothing |
||
|
Recreation/Entertainment |
||
|
Health Care |
||
|
Insurance (Health, Life) |
||
|
Taxes (Income, F.I.C.A., personal property) |
||
|
Other (personal assistance, child care, pet costs, gifts, donations, religious offerings -- list here or on separate sheet and & enter total amount) |
||
|
Total Monthly Living Expenses |
(G-1) |
(G-2) |
|
H. Monthly Bills (Debt): |
||
|
Total Monthly Bills: |
(H-1) |
(H-2) |
|
I. Total Non-Housing Expenses (G) + (H) |
(I-1) |
(I-2) |
|
J. AMOUNT SPENT FOR HOUSING (J-1: Enter current rent/J-2: Enter proposed mortgage) |
(J-1) |
(J-2) |
|
K. TOTAL MONTHLY EXPENSES ADD (I) + (J) |
(K-1) |
(K-2) |
Name of Borrower(s)[(borrower(s) name)]
|
INCOME AND MORTGAGE QUALIFYING ANALYSIS |
|
|
ENTER PROPOSED TOTAL EFFECTIVE INCOME (F-2) from p. 1 |
(F-2) |
|
ENTER PROPOSED TOTAL MONTHLY EXPENSES (K-2) from p. 2 (should include mortgage payment and all expenses) |
(K-2) |
|
L. Subtract (K-2) from (F-2) and enter here. This is your PROPOSED RESIDUAL INCOME -- NOTE: PROPOSED RESIDUAL INCOME CANNOT BE A NEGATIVE AMOUNT |
(L) |
|
QUALIFYING RATIO TEST |
|
|
ENTER (B-2) from p. 1 |
(B-2) |
|
(i) Multiply amount from (B-2) x 1.25 and enter here |
(i) |
|
(ii) ADD (A-2) plus (C-2) from p. 1 and enter here |
(ii) |
|
(iii) TOTAL GROSS INCOME -- Add (i) plus (ii) and enter here |
(iii) |
|
ENTER proposed mortgage amount (J-2) from p.2 here |
(J-2) |
|
M. Housing Debt-to-Income Ratio: Divide (J-2) By (iii) and enter here |
(M) |
|
(iv) Add proposed monthly bills (H-2) from p. 2 plus proposed monthly mortgage (J-2) above and enter total here |
(iv) |
|
N. Total Debt-to-Income Ratio: Divide (iv) above by (iii) and enter here |
(N) |
|
NOTE: PROPOSED TOTAL DEBT-TO-INCOME RATIO MAY NOT EXCEED 50 PERCENT WITHOUT COMPENSATING FACTORS PER FANNIE MAE SELLING GUIDE |
|
|
List any compensating factors or other comments here:
|
|
Worksheet Explanation
Whether you are applying for a HomeChoiceSM loan or another type of mortgage loan, you should complete this page and page two during your personal planning process, BEFORE you go to a lender to apply for a mortgage loan. If you are applying for a HomeChoice loan and have an income that is less than 50 percent of the area median income, you will be required to submit this budget worksheet with your loan application, and the lender will be required to verify your figures for income and expenses. Be sure to give as much information as possible to help the lender understand all of your sources of income and support and all of your expenses.
The categories and boxes are lettered and numbered to help you keep track of the figures and transfer amounts from one page to another as needed to see how much mortgage you qualify for. Following is a line by line description for the two-page budget worksheet.
Page One: Income Analysis
A. Wage/Salary Income -- This includes all income you earn at a job(s). Put down your gross income, meaning your income before taxes or other deductions.
B. Benefit Income -- Non-taxable: this category is for all government benefits that are not taxable such as Social Security, Supplemental Security Income (SSI), Social Security Disability Income (SSDI), Food Stamps, Veterans Benefits, Aid to Families with Dependent Children (AFDC or ADC), and any state or local supplements to federal benefits.
C. Other Funds Designated Specifically for Mortgage -- Includes any funds that can be used only to make a mortgage or other housing payment. Examples of such funds are the housing portion of room and board payments for a live-in personal assistant made through a state Medicaid Home and Community Based Services (HCBS) Waiver program, or housing payments designated from a special needs trust.
D. Total Monthly Income -- Adds the first three categories together.
E. Other Sources of Support -- You record any resources that cannot be counted by a lender as true income for purposes of calculating how much mortgage you qualify for. List cash support or non-cash support that has a dollar value and helps you with daily living expenses such as food, transportation, or home maintenance. Such items might include regular monthly financial support from a parent or family member, funds from a government or private source for personal assistance, food club or food voucher assistance, transportation vouchers, and other sources of support you might receive through a housing or support service organization. All items must be verifiable with documentation from the source of the support.
F. Total Effective Income -- While lenders cannot count all of the above sources as true income, it is your "effective" income, meaning it includes all the resources you have to maintain your personal needs and a housing payment.
Page Two -- Monthly Expense Analysis
G. Living Expenses -- The best way to develop an accurate monthly expense budget is to track what you actually do spend on these items for at least six months to a year. Remember to make changes to any expenses that may increase or decrease when you are living in your own home. The list of items shown may not include everything on your personal budget, so be sure to add any other items that are important to you. If you have included a specific resource for a specific expense on page one, such as $60 for a bus voucher, you should also include that $60 as an expense under "Transportation" in your monthly expense list. If your transportation expense is actually more than your voucher provides, then list the total or actual cost of transportation.
H. Monthly Bills (Debt) -- This category is for credit card payments, student loans, car payment, or other consumer loans, and any other monthly payment(s) you are currently making that is not for a living expense. Your credit history should also reflect that you are making payments in this category.
I. Total Non-Housing Expenses -- Add your living expenses to your bills.
J. Amount Spent for Housing -- In the first column, enter what you currently pay for rent. In the second column, put what you think you will pay for a mortgage payment.
K. Total Monthly Expenses -- This figure includes all your housing, living expenses, and bills. Your monthly expenses cannot exceed your total effective income (F) from Page One.
Page Three: Income and Qualifying Analysis
This page will be completed by a lender in most cases, although you might work on it on a preliminary basis with a home-buyer education provider or someone from your planning team.
L. Residual Income -- Simply,this means any money you have left over at the end of the month after meeting all of your living expenses, bills, and housing payments. This amount must be greater than zero, and if there is not enough money here to give you a cushion for unexpected expenses, you could find yourself having trouble making your mortgage payment. Be sure that your monthly expense analysis covers every possible expense and gives you enough money for your needs so there will be as few "surprises" as possible that will affect your budget.
M. Housing Debt-to-Income Ratio -- This is explained later in this chapter under the description of the HomeChoice mortgage. For conventional mortgage loans, lenders can make mortgage loans resulting in a monthly payment that is up to 28 percent of the borrower's income. Fannie Mae's Community Home Buyer ProgramsSM, including HomeChoice for borrowers with incomes between 50 and 100 percent of area median income (known as Group One borrowers), allow mortgage payments to take up to 33 percent of borrower income. With HomeChoice, borrowers with incomes at or below 50 percent of area median income (known as Group Two borrowers) may be allowed mortgages that take up to 50 percent of their incomes, as long as this budget worksheet is completed and approved by the lender.
N. Total Debt-to-Income Ratio -- Lenders making conventional mortgage loans will allow the mortgage and monthly bills of a borrower to total up to 36 percent of their income. Fannie Mae's Community Home Buyer ProgramsSM, including HomeChoice for Group One borrowers, allows up to 38 percent. Group Two borrowers may have a total mortgage payment and debt ratio of up to 50 percent.
With other mortgage programs, various qualifying rules may apply. Please check with your lender for specific qualifying and underwriting requirements for different mortgage loans.
Examples of Joe’s budget worksheets
Fannie Mae HomeChoicesm
GROUP TWO BORROWER BUDGET WORKSHEET
(NOTE: Pages One and Two of Budget to be completed by borrower as part of homebuyer education and counseling AND verified by lender. Page Three to be completed by lender.)
Name of Borrower(s)[JOE JOHNSON]
Prepared By[JOE JOHNSON and MARY JOHNSON (mother)] 3/20/97
(name and relationship to borrower) (Date Prepared)
Name of Lender [CENTRAL CITY MORTGAGE COMPANY]
Verified By [JANE BROWN, LOAN OFFICER] 4/3/97
(name and title of lender representative) (Date Verified)
|
MONTHLY INCOME ANALYSIS |
CURRENT |
PROPOSED |
|
A. List Wage/Salary Income (GROSS) |
||
|
JOB AT LIBRARY |
85 |
85 |
|
Total Wage/Salary Income |
(A-1) $ 85 |
(A-2) $ 85 |
|
B. List Benefit Income (Non-taxable) |
||
|
SUPPLEMENTAL SECURITY INCOME (SSI) |
494 |
494 |
|
STATE SSI SUPPLEMENT |
200 |
200 |
|
FOOD STAMPS |
60 |
60 |
|
Total Benefit Income |
(B-1) $ 754 |
(B-2) $ 754 |
|
C. List Other Funds Designated Specifically for Mortgage (Attach documentation): |
||
|
Total Other Funds |
(C-1) ZERO |
(C-2) ZERO |
|
D. Total Monthly Income (A)+(B)+(C) |
(D-1) $ 839 |
(D-2) $ 839 |
|
E. List Other Sources of Support and Dollar Amounts or Value (these amounts may be included in income and expense analysis, but may NOT be used to calculate qualifying ratios -- also, funds available for a specific type of support that are listed as income MUST also be reflected in monthly expenses on page 2) |
||
|
MONEY FROM MOTHER (FATHER'S PENSION, DOCUMENTED) |
100 |
100 |
|
PERSONAL ASSISTANT FUNDING SUPPORT |
800 |
800 |
|
Total Other Supports : |
(E-1) $900 |
(E-2) $900 |
|
TOTAL EFFECTIVE INCOME (D) + (E) |
(F-1) $1,739 |
(F-2) $1,739 |
Name of Borrower(s)[JOE JOHNSON]
Number of Persons in Household[ONE]
|
MONTHLY EXPENSE ANALYSIS |
CURRENT |
PROPOSED |
|
G. List all living expenses: |
||
|
Food |
170 |
170 |
|
Household Supplies |
20 |
30 |
|
Utilities (gas, electric, water, sewer) |
80 |
100 |
|
Property maintenance/repair |
0 |
50 |
|
Transportation |
50 |
50 |
|
Telephone |
30 |
30 |
|
Cable Television |
24 |
0 |
|
Clothing |
50 |
40 |
|
Recreation/Entertainment |
20 |
20 |
|
Health Care |
0 |
0 |
|
Insurance (Health, Life) |
0 |
0 |
|
Taxes (Income, F.I.C.A., personal property) |
0 |
0 |
|
Other (personal assistance, child care, pet costs, gifts, donations, religious offerings -- list here or on separate sheet and & enter total amount) |
||
|
Personal Assistant |
800 |
800 |
|
Church Offering and Personal Gifts |
28 |
28 |
|
Total Monthly Living Expenses |
(G-1) $ 1,272 |
(G-2) $1,318 |
|
H. Monthly Bills (Debt): |
||
|
(Joe paid off his one credit card during his |
||
|
homebuyer education process) |
||
|
Total Monthly Bills: |
(H-1) zero |
(H-2) zero |
|
I. Total Non-Housing Expenses (G) + (H) |
(I-1) $ 1,272 |
(I-2) $1,318 |
|
J. AMOUNT SPENT FOR HOUSING (J-1: Enter current rent/J-2: Enter proposed mortgage) |
(J-1) $380 |
(J-2) $420 |
|
K. TOTAL MONTHLY EXPENSES ADD (I) + (J) |
(K-1) $ 1,652 |
(K-2) $ 1,738 |
Name of Borrower(s)[JOE JOHNSON]
|
INCOME AND MORTGAGE QUALIFYING ANALYSIS |
|
|
ENTER PROPOSED TOTAL EFFECTIVE INCOME (F-2) from p. 1 |
(F-2) $ 1,739 |
|
ENTER PROPOSED TOTAL MONTHLY EXPENSES (K-2) from p. 2 (should include mortgage payment and all expenses) |
(K-2) $ 1,738 |
|
L. Subtract (K-2) from (F-2) and enter here. This is your PROPOSED RESIDUAL INCOME -- NOTE: PROPOSED RESIDUAL INCOME CANNOT BE A NEGATIVE AMOUNT |
(L) $ 1 |
|
QUALIFYING RATIO TEST |
|
|
ENTER (B-2) from p. 1 |
(B-2) $ 754 |
|
(i) Multiply amount from (B-2) x 1.25 and enter here |
(i) $ 942.5 |
|
(ii) ADD (A-2) plus (C-2) from p. 1 and enter here |
(ii) $ 85 |
|
(iii) TOTAL GROSS INCOME -- Add (i) plus (ii) and enter here |
(iii) $ 1,027.50 |
|
ENTER proposed mortgage amount (J-2) from p.2 here |
(J-2) $ 420 |
|
M. Housing Debt-to-Income Ratio: Divide (J-2) By (iii) and enter here |
(M) 40.9 % |
|
(iv) Add proposed monthly bills (H-2) from p. 2 plus proposed monthly mortgage (J-2) above and enter total here |
(iv) $ 420 |
|
N. Total Debt-to-Income Ratio: Divide (iv) above by (iii) and enter here |
(N) 40.9 % |
|
NOTE: PROPOSED TOTAL DEBT-TO-INCOME RATIO MAY NOT EXCEED 50 PERCENT WITHOUT COMPENSATING FACTORS PER FANNIE MAE SELLING GUIDE |
|
|
List any compensating factors or other comments here:
|
|
Your credit record
In evaluating any loan request, the lender will want to check the buyer’s credit record. Typically, the evaluation includes obtaining a credit report that shows the buyer’s credit history which includes how much money the person owes. For people with disabilities, there may be some unique issues with their credit history. Three of the most common issues are described below.
Lack of control over one’s own money
Many people with disabilities have lived their entire adult lives in situations where their finances were managed by others. Whether you lived with your parents, or in a boarding home, nursing home, institution, group home, or in some other supported living situation, a service provider or a parent probably paid your bills. In fact, the bills to pay for your housing costs may have been in someone else’s name or an agency’s name. In this situation, you would not have had an opportunity to develop a credit history. Therefore, your credit report would show no record of paying bills or making other regular payments.
Lack of employment experiences
Another issue that may make it difficult to develop a credit history is a lack of job experiences. If you lived in an institution, you may never have had a job. Perhaps you shared a job with a group of people who received assistance from an agency. If you were moved frequently, you may have had to leave jobs because transportation was unavailable. You may not have had access to the appropriate training and ongoing assistance with a job. Because earning too much money jeopardized your benefits, you may have only held part-time positions. For whatever reason, if you have not had steady employment, you may not have been able to establish a credit history.
Lack of evidence of borrowing or saving money
If someone else has managed your money for you, chances are you have not had the opportunity to borrow money. If you have never had a loan to repay or had a credit card in your name, it is difficult to demonstrate that you are capable of repaying money that you borrow.
If you have income in the form of public benefits, there are probably restrictions about how much money you may have at any one time. Typically, a person receiving these benefits can accumulate only a very small amount of money in a savings account, making it impossible to show an ability to save money.
Nontraditional credit
If you do not have a traditional credit record that shows payments made on credit card purchases, a car loan, or a student loan, it is still possible to establish a credit history. For example, you can build a nontraditional credit history by documenting your monthly payments to:
The documentation of payment of these bills is called a nontraditional credit history. Even though these payments will not appear on a credit report, you can show proof that you paid them with canceled checks, receipts, and reference letters from creditors.
You can also document payments to cover housing costs made by an agency, guardian, or representative payee on your behalf as proof of regular payments. Obtaining this information from an agency may be complicated, especially if you live in a group home or an apartment with other people. The money that you and others pay to the agency for housing and assistance, along with any other funding the agency receives to provide these services, is combined to cover all of their expenses. It may be difficult for an agency to determine exactly how much money is spent on behalf of one individual. It is a good idea to ask for this information early in the process, as it may take some time for the agency to locate and organize the information you need.
Establishing a credit record
You can start now to establish a credit record. Be sure that all of the bills for your housing and other expenses are in your own name, rather than that of an agency or another person. You should open your own checking account and should pay your bills from this account. Having a checking account is a means of demonstrating financial responsibility. Borrowing money and then paying it back will also begin to establish a credit history. If it is possible to take out a small loan and pay it off on time, this will further indicate to a lender that you are capable of meeting your financial obligations. Begin now to save all documents that will help you to establish a credit record, such as bank statements, receipts, and canceled checks.
How to access your credit record
Your credit record is compiled by credit bureaus and made available to lenders and others if you apply for loans or items such as credit cards. You may request a copy of your credit record from these companies, usually referred to as "credit reporting agencies." The three major credit bureaus are Experian (1-800-353-0809), Trans Union (1-800-680-7293), and Equifax (1-800-556-4711). Others may be listed in the Yellow Pages of your phone book. Usually, there is a small fee for a copy of your credit report, although in many states you may obtain one free copy per year. If you have been denied credit because of a poor credit history, you can receive a credit report for free. It is recommended you obtain a copy of your record, so that you know where you stand before you begin the process of purchasing a house. The "Additional Resources" section at the end of this manual lists some commonly used credit reporting agencies.
Repairing a bad credit record
You may find that your credit record reflects you did not always pay your bills in a timely manner in the past. If you are currently having credit problems, you may not be in a position to buy a house until these issues are resolved. To proceed would only add to your problems. For assistance with credit problems, contact a consumer credit counseling agency or homeowner counseling agency in your area. To find the nearest consumer credit counseling agency, call 1-800-388-2227. Homeowner counseling agencies can be found in the Yellow Pages of your phone book, or call 1-800-7FANNIE for more information.
If, on the other hand, your credit problems are behind you, your current record of paying your bills may satisfy and convince a lender that you will repay your mortgage on a timely basis. By law, most unfavorable credit information must be eliminated from your credit file after seven years. A bankruptcy remains on your credit report for seven to ten years.
Correcting an inaccurate credit record
Unfortunately, credit reports are sometimes inaccurate or give a misleading picture of past credit problems that have been resolved. You may have bad credit due to incorrect billing for medical expenses by agencies such as Medicare. If this is the case, bring it to the attention of your lender. If you find any errors on your credit report, you will want to have them corrected before you apply for a mortgage. To correct errors, you must write to the credit reporting agency and ask it to investigate the items you believe are incorrect. Credit agencies are required to follow up and to inform you of their findings. If the error is still not corrected, you may need to take further action. Usually, the credit reporting agency will tell you what steps you need to take. If you disagree with any portion of your credit report, the credit agency must include your explanation of the situation in future reports.
Note: You may obtain a free copy of a Federal Trade Commission publication entitled "Building a Better Credit Record" by contacting Fannie Mae HomePath Services at 1-800-7FANNIE (or 1-800-732-6643). This free publication is available in both English and Spanish.