My Co-worker Qualified for More Than Me, Why?
February 12, 2018 | Posted by: Shayne Beeler
This question comes up on a regular basis. Two people (let’s say Bob and Karen) that work at the same company end up buying a house around the same time and while discussing the process, it comes out that Karen qualified for a $100,000 higher purchase price than Bob. Both have similar positions and nearly identical wages… so when Bob found out that Karen qualified for a significantly larger amount, he decided to give his Mortgage Broker a call.
Let’s start with what we’re comparing – the purchase price and not the mortgage amount. Rarely do buyers, while discussing a search for a new home, talk about their ranges based on mortgage amounts. In fact, neither do we when we’re working with a client planning a purchase. Once we baseline what the options for the down payment are, we then focus on price ranges as a combination of down payment and mortgage amount.
Secondly, not all borrowers that earn the same wage have the same liabilities. Mortgage qualification is based on “debt servicing” – defined, the amount of money required to service a loan. This is based on a percentage of one’s total income but also factors in payments that a borrower already has.
So what would we tell Bob when he calls and asks why Karen qualified for a larger purchase than him? While we may not know Karen’s situation nor could we discuss it specifically with Bob if we did, we’d discuss Bob’s down payment and monthly expenses he already has. Bob is making a 10% down payment on his new purchase in the amount of $40,000. We ask if Bob was aware of his co-worker’s down payment? It turns out Karen did share with Bob, that she received an inheritance of $80,000 that she added to the roughly $20,000 that she had already saved up. While on the topic, we then asked if he knew of any vehicle loans Karen had? Apparently, Karen also shared several months earlier that she had made her final vehicle payment and was excited to be free of any personal debts. Bob? He currently makes a $400/month vehicle payment making his actual debt service ratios different than someone who earns the same wage but doesn’t have the same existing liabilities.
So in summary – there’s more to determining what someone qualifies for than the wage they earn. Two individuals with the exact same wage may have different down payment options along with different personal liabilities. Still feeling like Bob and you’d like to know why someone you know qualified for a larger purchase than you? Feel free to give us a call and we’ll help clarify where the differences might be.