Ducks Are Important When Buying A Home in #Orange County
Get all your Ducks in a row. Be prepared so that you don’t start a purchase process before you are ready. Many people have said to me, “Oh, I’m good. I have great Credit. I won’t have any trouble getting a loan. But unless you are prepared you may be surprised at how the lending requirements have changed from even 8 years ago.
A few years ago, we had Stated Income so if you said you had a certain amount of income, they believed you and could move forward on that. Your DEBT to INCOME Ratio was a lot lower than it is today.
So, how do you know how much loan amount you can afford?
The key is your debt-to-income ratio. The debt-to-income ratio is a critical measurement that underwriters use to determine your ability to repay the loan. Given its importance to the Lending decision, it is critical to understand the debt-to-income ratio and what you can do to improve it.
So, debt-to-income ratio?
You actually have two debt-to-income ratios that Lenders use to determine if you can afford a new Mortgage. The first is what’s known as the front-end ratio or housing ratio. The housing ratio is your proposed total monthly housing which is your new mortgage payment, property taxes and insurance combined, divided by your gross monthly income. The other important ratio is known as the total debt ratio. In addition to your housing payment, the total debt ratio factors in other monthly Credit Obligations such as car loans, credit cards and student loans.
So, How much will Lenders allow?
Most lenders do not have maximum debt-to-income ratios per se, but rather guidelines that offer some flexibility. In general, lenders want to see monthly housing debt of no more than 28% to 33% of your income and total debt of no more than 38% of your income. Lenders will exceed these guidelines when sufficient offsetting factors exist, such as excellent credit, larger than required equity or down payment, or demonstrated ability to maintain a similar payment. Keep in mind, however, that the farther you exceed the guidelines, the stronger your offsetting factors will need to be.
So, How Can I improve my Debt to Income Ratio?
The nice thing about the debt-to-income ratio is that, unlike some other aspects of your financial life, it can be improved. You may be able to, for example, improve your debt-to-income ratio by paying off some of that excess debt. But be sure to check with your lender before you start paying that debt down, because lender requirements do vary.
So, Now What?
Now you contact a Great Real Estate Agent who will respond to you immediately. Who will lead you thorough the process so that you are not surprised anywhere down the road. An agent who is Honest, Experienced, resourceful and treats you like Family. Why not expect the Possible and receive the Impossible. Choose