Like most people, you will probably wait until submitting a purchase contract on a home before applying for a mortgage. By then, not only will you know the specific property you want, but also how much you need to borrow. At that point, the lender will require that you fill out a loan application and reveal specific information about your current and past financial situations.

One of the most important things to consider when qualifying for a home loan today is your down payment. If you have the ability to make a larger down payment or otherwise reduce the loan to value ratio of your mortgage, you may be able to qualify for a mortgage which you would not qualify for otherwise. There are many ways of structuring downpayments, including some which do not require you to commit additional cash from your pocket. Please contact a specialist at 414-303-1215 or msearing@mayfairmortgage.com for more information.

One of the biggest factors in determining whether you qualify for a loan is your debt to income ratio, also commonly referred to as DTI. Debt to income Ratio is calculated by figuring out what your total monthly debt is and dividing your total monthly income. This will provide an underwriter with your "Total" DTI. Your monthly income is calculated by using a simple formula. There is also another debt ratio that is sometimes calculated by underwriters and lenders. This is called your housing ratio. In this calculation your total house payment, principal, interest, taxes, insurance, PMI (if applicable), association fees (if applicable), school taxes (if applicable) will all be divided with your monthly income to come up with your housing ratio. This will show a lender how much of your monthly income will be used for solely your housing payment. Some lenders place restrictions or have guidelines as to how high this can be.
An example of DTI and housing ratio is:
$5000 per month income
$1000 per month total mortgage payment
$1,800 per month total monthly bills (this includes proposed mortgage payment)
5000/1000 = .20 * 100% = 20% Housing ratio
5000/1800 = .36 * 100% = 36% Total debt to income ratio
These ratios look pretty good and will qualify you with just about every lender available without considering anything else within your loan file.

Do not be discouraged if your credit score is not perfect. Many automated underwriting engines will look more at credit profile then overall credit score to issue an approval. If you have always paid your bills on time and have no major derogatory items on your credit report chances are you will qualify for your home mortgage.

 

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