LOAN RATIOS A mortgage loan is usually evaluated using a number of factors, including: the borrower's credit the borrower's assets the borrower's current debt load the borrower's projected debt load the borrower's employment A lender gets a good picture of a borrower's current debt load by looking at the borrower's credit report. The credit report usually lists a borrower's credit lines, their current outstanding loan balances, and expected monthly payments. A lender will normally calculate your total monthly debt load (credit cards, car loans, etc) and the projected monthly cost of the mortgage you are applying for (including the loan payment, property taxes, insurance, etc.). They compare this combined debt to your total monthly income. This is the debt to income ratio that a lender evaluates. Many lenders do not want to see a debt to income ratio of over 40%. Some lenders allow a 50% or higher debt to income ratio. NO RATIO LOANS These types of loans are where lenders do not need this information to make their loan decision. The loan decision is usually made based on the borrower's credit and their down payment or the equity in the property. The lender normally charges more for this option. It can be useful for people who do not want to document their income. There are also people who have fluctuating income, such as commissioned salespeople. Some borrowers do not want to wrestle with lenders about their income documentation and go for the "No Ratio" loan option. |
