Have you ever wondered how lenders calculate how much you can qualify for when you’re looking for a house? What do they take into account? Income, debt, monthly obligations? Are you getting prequalified for an amount that you can’t afford? These are all questions that would be good to understand. Be an informed education and informed buyer! Continue reading if you want answers to these questions.
Understand what lenders are looking at
Lenders obviously have a very methodic way of evaluating a buyer’s financial ability to afford a house. It isn’t just based on a borrower’s income. That’s only part of the equation. And what about a buyer’s credit score? That’s not the complete answer either.
What is a debt to income or DTI ratio?
A borrower must understand that lenders use a debt to income (DTI) ratio to evaluate a buyers ability to handle a mortgage and for what amount. The debt to income ratio compares the borrower’s debt payment obligations to their monthly gross income. Servicing monthly debt obligations can be overwhelming even when there is a high monthly income. These include car payments, credit card payments, student debt, IRS tax lien payments, alimony and child support. One that buyers probably don’t know about is that the charges for LEASED solar panels are also considered. A lender will take the monthly debt payments and payment for the house and compare these to a specific ratio. Best to watch the video above for the best explanation.
When you’re ready, and want to be notified of homes automatically, click on receive properties as they come on the market.
What can you do to improve your debt to income ratio?
Before you sign up for any additional financial obligations, consider how this will affect your debt to income ratio and therefore the ability to qualify for a loan. And when considering your next car purchase, ask yourself if it is better to buy an expensive depreciating asset or invest in a house that appreciates.
If you need assistance with the prequalification process and the recommendation of a good loan officer, please reach out to me at 480-326-8571.