Home Loans
How Does A Lender Decide How Much I Can Borrow?
(presented by www.refinance-refinance.net - mortgage lenders)
By Ben Afzal
Basics
Lenders look at mortgage applicants with a standard set of measurements, which can include:
- your credit score
- your income
- your tax records
- your bank statements
- your rental history
- your employment
- your downpayment
A lender will look at all of these factors to get a general idea about you.
Documentation Types
Keep in mind that mortgage lenders often have two types of ways they offer loans:
- full documentation
- stated documentation
A full documentation loan is one where you prove all of the contents of your mortgage application, including your income and assets. A stated documentation loan is one in which you just hand in a mortgage application without supplying supporting documentation. There are also hybrid programs between these, such as when a borrower states their income but proves their assets.
How Much You Can Borrow
A lender typically wants your total monthly debt load to be less than 40% of your pretax income.
Your monthly debt load includes your monthly:
- credit card payments
- car payments
- student loans
- other debts
- your new mortgage expense, if you are approved
- your new property taxes, if you are approved
- any other housing related expense, if you are approved
If your monthly income is $5,000 and your monthly debt burden will be $2,000 then your debt/income ratio is 40% ($2,000 divided by $5,000). If the lender approves loan up to a 40% debt ratio they will approve you if you meet all their other criteria.
Lots of Opportunity
If you are rejected by one lender you may be able to get approved by another one.
Some lenders offer loans with a debt/income ratio of up to 55%. These lenders are more aggressive than other lenders about approving mortgage applications.
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