Qualifying the buyer and finance math

Qualify the buyer and the payment

A lender evaluates income, recurring debts, credit history, available cash, and the property securing the loan. Prequalification is a preliminary estimate; preapproval usually involves more verification but remains subject to conditions. A sales associate helps the buyer organize information and obtain lender guidance, without promising approval.

Calculate the ratios

Use gross monthly qualifying income. Divide annual income by 12. The housing ratio equals monthly housing expense divided by gross monthly income. The total debt ratio equals housing expense plus counted recurring monthly debts, divided by gross monthly income. Housing expense includes principal, interest, property taxes, and homeowners insurance, plus mortgage insurance and association charges when the program counts them. Qualifying percentages are lender or program standards, not a universal Florida legal limit; use the assumptions given in the problem.

For example, a lender allows 28% for housing and 36% for total debt. Gross income is $6,000 monthly, and other counted debt is $600 monthly. The housing limit is $6,000 × 0.28 = $1,680. The total debt limit is $6,000 × 0.36 = $2,160; subtract $600 to leave $1,560 for housing. Both limits apply, so use $1,560. If taxes and insurance total $360 monthly and there are no other housing charges, principal and interest may be $1,560 − $360 = $1,200.

Two calculations lead to a housing budget. Six thousand dollars of monthly income times twenty-eight percent yields sixteen hundred eighty dollars. Six thousand times thirty-six percent, less six hundred dollars of other debt, yields fifteen hundred sixty dollars. Use the smaller result. Subtract three hundred sixty dollars of taxes and insurance to leave twelve hundred dollars for principal and interest. — Apply both lender limits, then subtract the other housing costs.

Translate the budget into financing

With a payment factor of $6 per month per $1,000 borrowed, $1,200 ÷ $6 = 200 units; 200 × $1,000 = a $200,000 loan. Use a factor matching the interest rate and term. For a purchase program using the lower of price or appraisal as its value base, a $250,000 price and $240,000 appraisal at 80% maximum loan-to-value permit $240,000 × 0.80 = $192,000. The price gap is $250,000 − $192,000 = $58,000, before closing costs. One discount point is 1% of the loan, not the sale price. Cash needed also reflects closing charges, prepaid expenses, deposits already paid, and permitted credits.

Fair qualification and clear costs

Federal Equal Credit Opportunity Act protections apply to Florida lending: creditors may not discriminate on prohibited grounds, including marital status or receipt of public assistance income. They may evaluate income amount and probable continuance within the law. Truth in Lending distinguishes the interest rate from the annual percentage rate, which expresses the finance charge as an annual rate. Compare financing costs as well as the monthly payment.