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Commercial Mortgage Debt
A long time ago, home buyers bought the biggest mortgage they could and then
bit the bullet. Today, maxing out on mortgage debt can lead to an uncomfortable
lifestyle and an inability to meet emergencies. Despite that, most people do get
heavily mortgaged with a good portion of their income going to pay their home
loans. The range between 25 to 33% of income is considered normal, but given the
easy availability of mortgages, many
go over that amount. The higher the mortgage
amount, the less likely the home loan buyer will be saving for their retirement
or investing for that matter.
Lenders and Mortgage Debt Ratios
Mortgage lenders must assess your ability to handle mortgage debt before deciding
on the maximum amount you can borrow without putting yourself into serious overburdening
debt. They calculate a number of debt or mortgage
ratios that measure the home loan amounts you will qualify for.
The two ratios are the top debt ratio and bottom debt ratio.
The top debt ratio is calculated by tallying the total owing on your 1st mortgage
payment on the home, monthly real estate taxes, fire insurance, second mortgage
payment (from a second mortgage) and third mortgage payment (from a third mortgage).
The top debt ratio is often refered to as the PITI or cost of principal, interest,
taxes and insurance that is due on the home loan. This top debt is then divided
by your gross monthly net income. Lenders will typically lend to you up to a 30%
top debt ratio.
The bottom debt ratio is another calculation which divides the total housing
expense and debt payments the person owes each month by their gross monthly income.
Debts considered are car payments, credit card payments, personal loans and installment
loans.
Debt ratio analysis is combined with other factors such as your credit history
including payment history, credit rating or FICO score, pursuit of new credit,
length of employment, length living at current residence and on information gathered
from checks of employers. Investment money earned
and alimony owing will also affect credit worthiness decisions.
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