CONTRIBUTED CONTENT — If you are like most people, you might be confused about how lenders decide if they are going to give you a loan on a home. For most companies, it breaks down into two simple questions: How much do you earn and how much do you owe?
According to Jessica Elgin of Red Rock Real Estate, when a lender is determining if they are going to lend money – and if so, how much – they consider the consumer’s projected ability to repay the money they are asking to borrow. If it looks like you are at risk of not being able to make the payments, the lender will most likely not go through with the loan.
Learn more about the factors lenders consider from the experts at Red Rock Real Estate in the video in the media player above
To determine if they feel a potential client is at risk of missing payments, lenders will look at the debt-to-income ratio – or DTI – which is the person’s total expenses divided by their total gross income. The more debt a person has, the higher their DTI and risk.
A good DTI is 36%, Elgin said, and if it goes higher than that, so does the interest rate or the possibility of being denied the loan entirely.
Lenders also look at credit history, credit score, credit limit utilization and mortgage income ratio.
“Once your lender determines the amount that you qualify for, ask yourself if the payment they will require will give you enough money to live comfortably.”
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