Posts Tagged ‘Mortgage Approval’

Comments Off on Assessing Your ‘Debt-to-Income Ratio’ and Why This Number Matters When Getting a Mortgage

Assessing Your ‘Debt-to-Income Ratio’ and Why This Number Matters When Getting a Mortgage


2015
07.22

Assessing Your Debt-to-Income Ratio and Why This Number Matters When Getting a MortgageIf you are looking to buy a home, you may want to consider shopping for a loan first. Having your financing squared away ahead of time can make it easier to be taken seriously by buyers and help move along the closing process. For those who are looking to get a mortgage soon, keep in mind that the Debt-to-Income ratio of the borrower plays a huge role in the approval of your mortgage application.

What is a Debt-to-Income Ratio?

A debt-to-income ratio is the percentage of monthly debt payments compared to the amount of gross income that a person earns each month. Your gross monthly income is typically the amount of money you earn before taxes and other deductions are taken out. If a person’s monthly gross income is $2,000 a month and they have a monthly debt payments of $1000 each month, that person would have a DTI of 50 percent. The lower the DTI the better. 43 percent is in most cases the highest DTI that potential borrowers can have and still get approved for a mortgage.

What Debt Do Lenders Look At?

The good news for borrowers is that lenders will disregard some debt when calculating a borrower’s DTI. For example, utilities, cable, phone and health insurance premium would not be considered as part of your DTI. What lenders will look at are any installment loan obligations such as auto loans or student loans as well as any revolving debt payments such as credit cards or a home equity line of credit. In some cases, a lender will disregard an installment loan debt if the loan is projected to be paid off in the next 10-12 months.

What Is Considered Income?

Almost any source of income that can be verified will be counted as income on a mortgage application. Wage income is considered as part of a borrower’s monthly qualifying income. Self-employed individuals can use their net profit as income when applying for a mortgage, however, many lenders will average income in the current year with income from previous years. In addition, those who receive alimony, investment income or money from a pension or social security should make sure and include those figures in their monthly income as well when applying for a loan.

How Much Debt Is Too Much Debt?

Many lenders prefer to only offer loans to those who have a debt-to-income ratio of 43 percent or lower. Talking to a lender prior to starting the mortgage application process may help a borrower determine if his or her chosen lender offers such leeway.

A borrower’s DTI ratio can be the biggest factor when a lender decides whether to approve a mortgage application. Those who wish to increase their odds of loan approval may decide to lower their DTI by either increasing their income or lowering their debt. This may make it easier for the lender and the underwriter to justify making a loan to the borrower.

Comments Off on Mortgage Approvals : Documents You’ll Need For Your Lender

Mortgage Approvals : Documents You’ll Need For Your Lender


2012
11.14

Bank guidelines loosenAccording to the Federal Reserve’s quarterly Senior Loan Officer Survey, it’s getting easier to get approved for a home loan.

Between July – September 2012, fewer than 6% of banks tightened mortgage guidelines — the fourth straight quarter that’s happened– and roughly 10% of banks actually loosened them.

For today’s buyers and refinancing homeowners in Scottsdale , softening guidelines hint at a quicker, simpler mortgage approval process; one which gives more U.S. homeowners better access to today’s ultra-low mortgage rates. 

However, although banks are easing guidelines, it doesn’t mean that we’re returned to the days of no-verification home loans. Today’s mortgage applicants should still expect to provide lenders with documentation to support a proper loan approval.

Some of the more commonly requested documents include :

  • Tax returns, W-2s, and pay stubs : In order to prove income, lenders will want to see up to two years of income documentation. Self-employed applicants may be asked for additional business information. Borrowers earning income via Social Security, Disability Income, Pension or other means should expect to provide documentation.
  • Bank and asset statements : To verify “reserves”, banks will often require up to 60 days of printed bank statements, or the most recently quarterly reports. Be prepared to explain deposits which are not payroll-related — banks adhere to federal anti-money laundering laws.
  • Personal identification documents : To verify your identity, banks often require photocopies of both sides of your drivers license and/or U.S. passport, and may also ask for copies of your social security card.

In addition, if your credit report lists collection items, judgments, or federal tax liens, be prepared to discuss these items with your lender. Sometimes, a derogatory credit event can be eliminated or ignored during underwriting. Other times, it cannot.

The more information that you share with your lender, the smoother your mortgage approval process can be.

As the housing market improves and lender confidence increases, mortgage guidelines are expected to loosen more. 2013 may open lending to even more mortgage applicants.