Lenders Ratios
Mortgage lenders normally base home mortgage lending decisions on 5 factors:
income stability, debt-to-income ratio, the loan-to-value (LTV) ratio, property
appraisal, and credit history. They want to be able to quickly tell if you can
manage the monthly mortgage payments and
whether you’ll repay the home loan. They’ll examine your credit record,
analyze your sources of income and the amount of debt you currently have.
Income stability is determined by your employment history and current salary.
Investment income in the form of interest, commissions,
and royalties is also considered.
Lenders use two different mathematical ratios to assess your debt to income
percentage, and thus your financial capability. These lenders ratios are the front
end ratio and the back end ratio. The front end ratio is the ratio of the monthly
housing expense to the borrower's gross (pre-tax) monthly income. The back-end
ratio is the ratio between the borrower's total debt (which is the principal,
Interest, Taxes and Insurance applicable on the home
mortgage) plus other monthly debt payments
to the gross monthly income.
The loan-to-value ratio (LTV) is the comparison of your home loan amount to
the market value of your property. This indicates how much home equity you have.
It’s a percentage of what you’re trying to borrow against the resale
value of the house. For a loan to value of 75% than, you would have to invest
a downpayment of 25% and then borrow 75 % of the value of the home to purchase
it. In this case, you’d have 25% home equity.
Higher home equity means a lower loan
to value ratio which is less risky for the home
loan lender. Borrowers with less than 20% equity normally must have private
mortgage insurance (PMI), which protects the lender in case of a loan default.
The more more equity you have equals a lower home
equity mortgage rate.
A property must be appraised to ensure the market
value assessment is accurate. That means a Massachusetts
home mortgage or New Hampshire mortgage
must be preceded by an appraisal by a licensed Massachusetts
or New Hampshire real estate appraiser in those respective states.
Each mortgage lender will set their own guidelines for those seeking Massachusetts
mortgages or New Hampshire Mortgages. Speak with a GNA mortgage specialist today
and find out more about how your lenders ratios will be determined and how you
can ensure your information is accurate.
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