Are you in good shape to secure a mortgage?
Your debt-to-income ratio is one of the factors that mortgage lenders will use to assess your creditworthiness. This ratio measures the size of your monthly debt against your monthly income. Lenders look at this ratio to determine whether you are capable of taking on another loan. But what exactly do lenders consider the ideal debt-to-income ratio? Read on to find out.
Calculating Your Debt-to-Income Ratio
You can calculate your debt-to-income ratio by dividing your recurring monthly debt obligations (credit card payments, student loan payments, child support payments, etc.) by your gross (pre-tax) monthly income. The corresponding percentage is your debt-to-income ratio.
The “Ideal” Ratio
The ideal debt-to-income ratio is 36% or lower. Banks want to lend to homebuyers with lower ratios in general, as those with higher ratios are considered riskier borrowers. Those with low ratios have a better chance of qualifying for low mortgage rates.
Currently, the maximum debt-to-income ratio that a homebuyer can have to take out a qualified mortgage is 43%. Qualified mortgages are home loans with certain features that ensure buyers can pay back their loans. For instance, qualified mortgages don’t have excessive fees and they help homebuyers avoid loan products that can negatively affect their finances. If your ratio exceeds 43%, mortgage lenders will refuse to lend to you due to the high chance that you will default on your payments.
This is what you need to know about your debt-to-income ratio and qualifying for a home mortgage. Are you looking to buy or sell in the Hermosa Beach area? If so, make sure you are getting the dedicated and top-tier escrow services that you deserve. Contact the experts at Brighton Escrow to begin your hassle-free home selling or buying process today.