THE MORTGAGE BROTHERS SHOW
Episode 1: How Much Can I Qualify for a Mortgage?
Eddie Knoell: Welcome, everybody. This is our first podcast, first official podcast, and I’m telling you, we’re excited. Tom and I, we wanna use this podcast to be answering questions that borrowers have, sellers, buyers, real estate agents, anybody who’s willing to listen and anyone who has questions, we wanna use this podcast as a medium to get all these questions in the mortgage business out to them. Right, Tom?
Tom Knoell: So what are we talking about on our first podcast?
Eddie Knoell: Okay, so, what do borrowers ask us all the time? We made this huge list. One of the most common questions borrowers ask us is, “How much do I qualify for?”
Tom Knoell: “What do I qualify for, Tom?” That’s the call we get all the time.
Eddie Knoell: “I’m not sure how much I qualify for.” There’s all sorts of ways to do it. What we wanna do is just, those of you who are not watching the actual video portion of this, we’re gonna try to use very basic math. We’re gonna try to explain it in a couple different ways, and we’re gonna give you some good tips on how to qualify or how much … you can kind of estimate how much you can qualify for.
So, the easiest way … I say the “easiest,” the easiest and most thorough way to find out how much you pre-qualify for is to actually ask your loan officer and have them take a full application for you, have them run your credit, and they’ll actually determine exactly how much you can qualify for. Now-
Tom Knoell: That sounds very corporate, by the way.
Eddie Knoell: Does it? Okay, so, people are like, “Well, what if I don’t want to take an application?” That happens a lot. People are like, “Well, I don’t really wanna talk to you and give you all my information.”
Tom Knoell: But you know what the reality is? The reason why you are calling the loan officer is because there are so many variables. There’s so many factors that it’s very difficult to do a very quick synopsis. But we’re trying to do the very quick synopsis.
Eddie Knoell: That’s right. If someone does not want to take the application, this is exactly what I do. I’m gonna frame the scenario very simple for everybody and we’ll give you a really easy way to figure it out on basically a back of a napkin. Now, what I do is I take the gross monthly income of a borrower. Imagine that it’s $4000 a month. Now, in general, I’m gonna take 50% of that. So, if someone says they make $4000 a month, I take 50% of that. That’s $2000.
What that means is the bank does not want their total debt amount per month to be over $2000. That’s 50%. We call that a 50% debt to income ratio. At the very max, we wanna keep it at 50%. So, I take their gross monthly income, I divide it by two, so that gives us $2000.
Now, put that to the side. Now I ask the borrower, “How much … if you added up your car payment, your credit cards, your student loans … anything that shows up on that credit report, add that up. What does that equal?” Now, imagine it’s just … for easy math, it equals $500. So, we know that the bank will basically let them borrow up to $2000. They have already $5000 into the credit cards, student loans, car payments. So, there’s $1500 left. That’s the mortgage that they can qualify for, the mortgage payment, up to $1500 a month, potentially.
Tom Knoell: And does that include HOA, everything?
Eddie Knoell: Yeah. That’s a really rough number.
Tom Knoell: You would have to.
Eddie Knoell: Yeah, it’s gonna include-
Tom Knoell: You would have to include everything. So, if you get that cheap condo that’s got a $250 per month payment, it’s gonna severely impact what you can afford, ’cause you’re allowed $1500 left. That’s it.
Eddie Knoell: Yeah. For this borrower, their scenario, they would have a $1500 max. This is how much they could afford, $1500. Now, people might say, “Well, what does a $1500 mortgage payment equal?” Here’s the simple math. Now, you don’t have to do it in your head, because you probably just need a calculator or do it on a napkin. But you take $1500 … and this is the number I want you to remember. You wanna divide that by this number, $6.50.
Now, that goes today, that’s for the market today. We’re recording this here at the very end of February 2019. So, this is where market rates are today.
Tom Knoell: So, if I take 1500 divided by 6.5, I come up with 230. What does that mean?
Eddie Knoell: That is basically the calculation of $6.50 per $1000 that you borrow. That $230 that you see, that’s $230,000.
Tom Knoell: Thousand, okay. Okay, so let’s just say for some reason you made a little less than $4000 and your income was $3500. Divided by two, okay, so it was 1750 minus your 500. Let’s say you could afford 1250. 1250 would be your max mortgage payment. So what’s that mean? You take 1250-
Eddie Knoell: Good point. You divide that by 6.5. That now equals 192. $192,000.
Tom Knoell: Okay. So that seems pretty simple.
Eddie Knoell: Yes. And I know that some of you are wondering, “I didn’t follow that.” Maybe that was complicated. Just rewind this. You’ll discover it’s actually quite simple. Take your time, listen to it. But again, you’re just dividing that number by $6.50.
Tom Knoell: How did you come up with your $500 debt?
Eddie Knoell: The $500 debt was the example. I just came up with it for easy math.
Tom Knoell: Just easy … okay.
Eddie Knoell: That’s the amount that … if someone had a … that’s the total of all of their debt that would show up on their credit report. That’s their car payment, car loans, student loans.
Tom Knoell: So, in summary, you take their income, divide it in half-
Eddie Knoell: Yes.
Tom Knoell: Remove $500 or so for debt, and whatever’s left, you divide that by 6.5.
Eddie Knoell: That’s right. That’s right.
Tom Knoell: If you … just first time starting, you make $2000, divide it by two, you have $1000. You take out $500 worth of liability loans, you have $500 left. It’s not a real likely scenario, but that’s who you do it.
Eddie Knoell: Yeah, that’s right. If someone’s in that scenario we realize right away they don’t really qualify for anything. So, that’s right.
Tom Knoell: Simple. I like it.
Eddie Knoell: I hope that everyone’s enjoyed this podcast. We’re gonna continue to be answering questions that you have, so please email Tom or I. My email is eddie@AZmortgagebrothers.com, and Tom’s is …
Tom Knoell: tom@AZmortgagebrothers.com
Eddie Knoell: That’s right. Nice and simple. Eddie and Tom. Just email us the questions you want us to answer on our next future podcast, and we’ll be sure to answer them. Anyway, be sure to subscribe to this channel, ’cause what we’re gonna do is we’re gonna continue to produce this content and to like it.
Tom Knoell: And if they wanna unsubscribe before they even subscribe, is there a special button for that?
Eddie Knoell: There is, yeah. There is an unsubscribe, and you’re more than welcome to do that, too. We won’t take offense.
Tom Knoell: Okay, all right. Thanks. Good job, Ed.
Eddie Knoell: All right. Peace out.