Debt to Income
Dept to Income. When purchasing a home, the most import equation to a lender is your dept to income ratio. This is used not only by your lender, but also the underwriters for loan. Most loans are sold after closing and loans with very high loan to dept ratio are not attractive to be purchased. As a general rule it is not acceptable to have a dept to income over 43% percent. The ratio bascily determiners your ability to pay the mortgage of your new home. To calculate the dept to income is determine by adding up all of your dept payments and then divide them by your gross monthly income. The gross monthly icome is the amount of money earned before taxes and the deductions that are subtracted out. A good example of calculating is a monthly payment of $1,000 dollars, $120 dollar car loan and $500 dollars for other dept payments would give a total dept payments of $1,620 dollars. If the household income is $5,800, then the purchasers dept to income is %32 percent.
Over the limit what to do:
If your dept ratio is over the limit to secure a loan, most lenders will work with you to try to bring down the dept ratio. You may need to do an extension on your sales contract to allow time needed to change the ratio. Sometimes buyers will need several months to make the corrections. In other cases, a family member can gift funds that can help out. Another option that is used if a family member can co-sign on the loan. There credit would be checked as well as their income to dept ratio. Some of the larger lenders may make a mortgage loan if the dept to income ratio is higher than 43 percent. Exceptions can apply, a creditor would consider the dept to income ratio.
Using a local lender is highly recommended to assist you. It’s always great to have a face to face discussion to hear the recommendation and find out the opportunities to decrease your income to dept ratio.