Financing in Carrollton>Question Details

Ivan Chedah, Home Buyer in Dallas, TX

Why do banks use Gross income to calculate home affordability instead of Net income?

Asked by Ivan Chedah, Dallas, TX Thu Dec 27, 2012

Let's just say I grossed 60,000 this year but only took home 42,000 net. When I plug in the data using 60,000 I can obviously afford a much more expensive home. But isn't that misleading when I only took home 42,000?

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5
Ivan - rarely does a buyer ask for less than the bank will approve. Sounds like you are conservative - that's good - I'll bet you have a great credit score! You don't have to borrow as much as a bank is willing to lend. :)
0 votes Thank Flag Link Thu Apr 25, 2013
Yes, it is not wise to be house poor. Pick any 1 Realtor and work with him or her only and buy a house in your budget. It is your money and your credit so it is up to you whether you take good advise or not.
0 votes Thank Flag Link Thu Apr 25, 2013
You can sometimes get around that but its in your best interest to shop the loan requirements with different lenders... The debt to income ratios are considered gross though...
0 votes Thank Flag Link Fri Dec 28, 2012
The debt ratios are considered at Gross.
If us lenders used Net, then we would just allow higher debt ratios.

Same difference.

Also consider that deferred compensation does NOT show up in the Net.... http://www.ntreisinnovia.net/cgi-ntr/BR_login?0501134
0 votes Thank Flag Link Thu Dec 27, 2012
Ivan,
Gross is used because your net will change with the additional tax write off you'll receive from having a mortgage payment. They also calculate it off the gross debt payments, car, credit cards, student loans etc, which will reduce your available funds to make a mortgage payment.
0 votes Thank Flag Link Thu Dec 27, 2012
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