Taking out a mortgage soon for your new home? Congratulations! But wait, how are your financial history and records? Lenders will look into your creditworthiness before they grant you a loan. Therefore, you need to make sure that your credit score and history are clean and, as much as possible, high!
Let’s say, you have an average credit score, but you’re not sure if your debt-to-income ratio can be considered ideal. Your debt-to-income ratio is one of the most important things lenders look into to see if you’re eligible for a home loan.
In this post, we’ll talk about the ideal debt-to-income ratio for mortgages.
What Is Debt-to-Income Ratio?
First things first—it’s essential you have a clear understanding of what the debt-to-income ratio is. It represents your monthly gross income percentage that goes to your monthly payments, may it be for your car, student loans, or credit card.
Keep in mind: this ratio doesn’t include your everyday expenses, such as entertainment expenses, utility bills, groceries, and even your other insurance payments. It only includes all the existing debt you have that you’re still paying for during the mortgage application process.
The Ideal Debt-to-Income Ratio
In general, lenders look for a ratio of at least 36% or lower, but it’s still possible to get a mortgage with a ratio in the mid-40 percentage.
Maximum Debt-to-Income Ratio for Home Loans
The maximum debt-to-income ratio lenders allow today is 43%. If you have the maximum ratio, you can get a qualified mortgage, a type of home loan that helps ensure borrowers can pay off their loans.
On the other hand, if your debt-to-income ratio is higher than 43%, then you are considered a huge risk for a lender. Therefore, you won’t likely get the mortgage because lenders will see you as someone who can’t take on any additional debt at the moment.
In this case, it’s a good idea to work on your debt-to-income ratio first before you get a mortgage. That way, you don’t put yourself at risk for financial stress in the future; even worse, you could lose a lot.
Your Debt-to-Income Ratio
One thing you can do to know if you can have a mortgage is to calculate your debt-to-income ratio. Don’t worry; it’s easy!
Shannon Christenot quoted "All you need to do is get the total of all your recurring monthly payments, excluding the bills. Only add monthly debt payments; when you get the total, divide it to the amount of your pre-tax income."
Mortgage Broker in Los Angeles: Shannon Christenot
Mortgage lenders ensure borrowers are capable of paying off their loans; hence, your debt-to-income ratio is a vital deciding factor for them. In order to be granted a mortgage, you need to meet the ideal debt-to-income ratio today, which is at 36%, while the maximum is at 43%. Still, since your debt-to-income ratio only includes recurring monthly debt payments; other expenses, such as your everyday living expenses, are still not included. It is up to you to do a thorough analysis of what will work for you and what won’t.
Qualify for a mortgage today! Shannon Christenot offers home loans in Los Angeles. They will help you get the most affordable and flexible mortgage in the city. Contact them today at (818) 601-2231.