In the mortgage industry, lenders often use a variety of different ratios when they are evaluating applications for mortgage loans. While this is not the only way that lenders evaluate applications, it is a standard part of the process. Ratios tell a lender a lot about a person's financial picture, and here are three important ratios commonly used by lenders when evaluating applications for mortgages.
The debt-to-income (DTI) ratio is a very important ratio to mortgage lenders, as this reveals how much of a person's income is promised away to debt payments. This ratio is important because it tells a lender how much money a person has left over after paying bills. The DTI ratio only uses standard debts in the equation, including housing expenses, car loans, credit card payments, and other types of loans, and it then compares the total amount to the total amount of income the person earns. Lenders look for a ratio that is under 36%.
Credit utilization rate
The second important ratio to understand is called a credit utilization rate. This rate tells a lender how much of your available credit, in terms of credit cards, you are currently using. For example, if you have $100,000 of credit on all your credit cards combined but owe $40,000 on them, your credit utilization rate would be 40%. This is a very high percent, and lenders typically want it a lot lower than this. The actual rate that lenders are looking for varies, but you should aim to have a rate of no more than 10%.
Housing expense ratio
The typical ratio for housing expense is around 28%, however, some lenders may allow for this to be slightly higher. This ratio is often used with the DTI ratio, but it represents only the housing expenses a person has compared to the person's income. To find out the housing expense a person has, you would have to add up the mortgage payment, insurance costs, and property taxes. You would then compare this to the monthly income of the person. This ratio is often how lenders determine how much money a person can borrow when buying a house.
If you want to know if you qualify for a loan, you may want to work out these ratios at home before contacting a lender. If your ratios appear to be within the standards of mortgage lenders, you may want to go ahead and contact a company that offers mortgage services.
How many times have you put off making repairs around your home because you didn't have the money to make them immediately? Have those decisions caused even more repair bills because you waited to make the repairs? I have done this several times in the past, and, oftentimes, not making those repairs have cost me far more to complete because the damage spread. The whole reason I created my blog was to help others find the financing they need to make home repairs without worrying about choosing the wrong type of financing option. Hopefully, my hard-learned lessons will help you avoid the same struggles that I have undergone.