How Your Mortgage Is Affected By Debt Ratios

Basics of Debt Ratio

A mortgage lender will assess your loan application in the same manner that it assesses the applications of other borrowers.

A mortgage lender will, at its most basic level, compare your total obligations to your total income.

The total amount of your indebtedness is calculated on a monthly basis. This includes your monthly credit card payments, student loans, car payments, department store cards, and any other outstanding balances.I strongly suggest you to go here  to learn more about this.

Don’t try to hide debts from your mortgage lender because this information is publicly available on your credit report. They will notice it on your credit record if you don’t inform them.

Your total monthly debts are compared to your total monthly pretax income.

Your proposed mortgage payment is included in your overall debt. Lenders calculate your monthly payment based on the loan amount and interest rate you qualify for on a monthly basis.

Income

Your pretax income is comprised of your base pay, commissions, bonuses, rental income, interest income, and any other sources of revenue.

The lender will calculate a debt-to-income ratio by comparing these figures.

Your debt to income ratio is 40% if your monthly debt burden is $2,000 and your monthly income is $5,000.

Approval of the Lender

For their various loan programmes, mortgage lenders have guidelines.

Some of the most difficult-to-get loans have a lower debt-to-income ratio than others.

A debt-to-income ratio of less than 40% may be required for some lending programmes, such as a 5-year fixed loan. A debt-to-income ratio of less than 36 percent may be required for another loan type, such as a minimum payment option loan.

Amount of the loan

The debt-to-income ratio is sometimes used by lenders to decide how much of a loan they will approve for you.

Your lender may allow you for a lesser loan if your mortgage payment is too substantial an increase in your monthly debt burden.

Various Lenders

It’s important to remember that different lenders have varying lending policies. Some lenders will refuse to lend to someone who has a debt-to-income ratio of more than 42 percent. Other lenders will accept a debt-to-income ratio of up to 55 percent.