Mortgage companies consider many factors when they're determining how large a mortgage you qualify for. One of those factors is your debt-to-income ratio after you purchase a home. Even though HOA dues don't directly contribute to your debt load, they affect this ratio -- and how large a mortgage you can qualify for. If you're looking at homes, here's why you could get a larger mortgage by looking exclusively at houses that don't have homeowners association dues.
Your Personal Debt-to-income Ratio
Everyone has a debt-to-income ratio. It's expressed as a percentage and shows how large a person's debt load is compared to how much income they have.
Calculating your personal debt-to-income ratio is easy. Add up all the payments you make on outstanding debts in a month, and then divide that total by your income for the month. Finally, multiply the figure you get by 100 so that it becomes a percentage.
As an example, assume you have a credit card payment of $50 per month, student loan payments of $200 per month and a personal loan payment of $100 per month. Also, assume you earn $4,000 per month. Your total debt payments would come to $350. When divided by your income and multiplied to get a percentage, your debt to income ratio would be 8.75 percent ($350 / $4,000 x 100).
Mortgage Programs' Maximum Ratios
When underwriting mortgages, mortgage companies must adhere to programs' maximum debt to income ratios. Mortgages programs typically have both a housing-related debt-to-income ratio maximum and a total debt-to-income ratio max. For FHA loans, according to this FAQ, the housing-related maximum is 29 percent and total debt maximum is 41 percent. For other mortgage programs, the numbers are 28 and 36 percent, respectively. If a mortgage will put you over these maximums, you won't be approved for the mortgage.
Both housing-related and total debt-to-income ratios include HOA dues, even though they aren't technically debt. They're included because they must be paid on time -- just like debt payments.
Homes Without HOA Dues
By looking at homes that don't have HOA dues, you'll be able to lower your housing-related and total debt-to-income ratios. Since the money that you would otherwise have to pay towards your HOA dues can be put towards your mortgage payments, you'll be able to get a bigger mortgage. To find a home that doesn't have any homeowners association dues, just tell your real estate agent that you want to limit your search to homes without them.
