Lending institutions consider your full financial situation in calibrating acceptable loan structure and size. Some of the key factors that will come into play:
- DTI — Debt to Income — compares your pre-tax (gross) income to your expenses and commitments.
- Non-housing expenses and commitments, especially long-term debts such as car loans, student loans, child support and alimony.
- Do you have the cash available for down payment and closing? What is the source of the cash?
- What is your credit rating?
- Are there any outstanding or concerning issues in your credit history?
The Federal Housing Authority sets general guidelines about these ratios, which lenders will consider. These ratios may be adjusted up or down slightly over time. In the past few years, FHA guidance has recommended that monthly mortgage payments not exceed about 1/3 of gross income. Overall expense-ratio recommendations have been between 40% and 43%.
All of these factors will be considered and verified in determining qualifying loan amounts.