The reality of today’s mortgage market may come in the form of tough love. For many families, purchasing or refinancing a home can make a huge financial impact on their life. Applying for and successfully getting a home loan can be a bit tricky depending on your financial situation. Here are some things to just kind of keep in mind when it comes to the lay of the land in procuring home financing.
You must be able to support and the ability-to-repay (ATR). This is a government-mandated requirement that specifically requires the lender to document your actual ability to repay the money you’re desiring to borrow. This means you must have a credit score that’s sufficient, you must have a debt-to-income ratio that is sufficient, the property must be sufficient, the equity in the house must be sufficient and your income, you guessed it, all must be sufficient. One of the biggest reasons why people don’t get loans in today’s environment is due to debt-to-income ratio-too much monthly consumer debt in relation to the income being used in conjunction with the mortgage payment. There must be enough income to support the total amount of monthly debt load.
It’s a 2:1 ratio to one as max payment income allowance. So, for example, if you have $2,000 a month of monthly debt including the new housing payment plus car loans and student loans, for example, you must have $4,000 a month of documentable income on paper to offset the $2,000 a month expense.
Well, it becomes a little bit more unique if you have other streams of income that show losses, so, for example, if you have a business on the side that’s losing money, that will go against your income making your debt-to-income ratio higher because those expenses still must be offset by something. If the revenue from the side business negates all the income from your traditional income stream, there will be a debt-to-income problem.
• pay off consumer debt
• add a cosigner
• change loan programs
• borrow less money
• lower the interest rate
**Mortgage Tip** the debt-to-income ratio for most loan programs is 50 percent, some with even go as higher at 56 percent.
An experienced mortgage lender or underwriters are going to ask far ahead of time is it your best bet if your situation is anything out of the ordinary.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.