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My wife and I are beginning to look for a house. I am fairly new into my career and have had 3 promotions in 3 years that have drastically changed my income and bonus structure. My past 3 yrs salary and bonuses are as follows:
2010: 55k base, 15k bonus (received max payout %)
2011: 70k base, 25k bonus (received max payout %)
2012: 90k base, 180k bonus (received max payout %)
My new position(started in 2012) has bonus targets of 50%-200% of base pay that is tied to my profit and loss performance as a trader.
How will this translate into a mortgage affordability calculator? Will a lender simply average the previous 2 yrs bonus even though my salary and bonus targets have changed with my new position?
I do not intend to take more than a 450k loan btw, i just want to estimate what i could expect if we found our dream home and it was slightly more expensive than my 450k level.
Reputable lenders will take the (2) most recent annual bonuses, average them, divide that number by 12, and will add that amount to your monthly income for purposes of mortgage qualification.
Depending on your down payment your PITI (principal, interest, taxes and insurance) should not exceed
28% to 33% of your gross monthly income.
Qualifications can be tighter for programs other than fixed rate loans.
Your bonus of $25k and then $180k has a huge difference. I'm not sure they would average the two because they might wonder if the $180k is sustainable. The entire picture would need to be looked at.
It depends on the likelyhood of you continuing to recieve the bonuses and what amounts. If you can show them that you will get close to the $190k due to a promotion or change in bonus structure, then they should average it. Even if you cannot show the reason for the change they should average it, but some of it seems to be left up to underwriter discretion on deals I have done.
If you can make $270K/yr, and yet are in an area where you don't mind living in a 450K house, I'd just save up for a year or two and plop down a 50% down payment =)
Actually, I would have said that until rates got so low, so I would understand wanting to get something now.
Still, a $425K loan @ 3.75% (conservative) is $1968/mo, or 23,619 a year. Even if that's 30K a year w/ taxes and insurance, you'd still be under 28% of your gross income if you used a 90K base and only the 25K bonus.
Falconheadwest.. The drastic jump is due to a change in my title.. I maxed out my previous bonus structure last year as well, the target percentage was just a lot lower. 45k for decent year - 180k for a great year and where i am at now... Hope that cleared it up a little..
The likelihood of 180k is not high, but somewhere between 90-135 is likely over the next few years. That is why i do not want to max out what the bank will lend me based on just this year.
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