George L. Duarte

Mortgage Loans Fremont California Horizon Financial Associates

  • Home
  • About
    • About
    • Awards
    • Privacy Policy
    • California Privacy Notice
    • Accessibility Statement
  • Reverse Mortgage Library
  • Resources
    • Real Estate Corner Radio Show
    • VA Loans
    • Home Appraisal
    • Home Inspection
    • Loan Checklist
    • Loan Process
    • Loan Programs
    • Mortgage FAQ
    • Mortgage Glossary
    • Closing Costs
    • Living Trusts
  • Reviews
    • Video Testimonials
    • Reviews
    • Write a Review
  • Apply Now
  • Contact

How Do Mortgage Lenders Decide How Much You Can Borrow?

September 3, 2020 by George Duarte

How Do Mortgage Lenders Decide How Much You Can Borrow?When you visit your lender to get a mortgage for your home, they will tell you the maximum amount that you are allowed to borrow. But how do they reach this total and what factors do they take into consideration?

How do they determine that one borrower can take on a bigger mortgage than the next? This decision is made by mortgage companies by considering a wide range of factors, including your credit information, your salary and much more.

Here Are Some Of The Common Ways That Lenders Determine How Much You Can Borrow:

1. Percentage Of Gross Monthly Income

Many lenders follow the rule that your monthly mortgage payment should never exceed 28% of your gross monthly income.

This will ensure that you are not stretched too far with your mortgage payments and you will be more likely to be able to pay them off. Remember, your gross monthly income is the total amount of money that you have been paid, before deductions from social security, taxes, savings plans, child support, etc.

2. Debt To Income Ratio

Another formula that mortgage lenders use is the “Debt to Income” ratio, which refers to the percentage of your gross monthly income that is taken up by debts. This takes into account any other debts, such as credit cards and loans. Many lenders say that the total of your debts shouldn’t exceed 36% of your gross monthly income.

The lender will look at all of the different types of debt you have and how well you have paid your bills over the years. By using one of these two formulas, your mortgage lender calculates the size of a mortgage that you can afford.

Of course, there are many other factors that need to be considered, such as the term length of the loan, the size of your down payment and the interest rate.

Remember that when factoring in your income, you usually have to have a stable job for at least two years in a row to be able to count your income. If you want to increase your chances, you could consider paying down your debts or buying with a co-borrower, which will improve your debt to income ratio.

For more info about mortgages and your home, contact your mortgage professional.

Filed Under: Home Mortgage Tips Tagged With: Debt To Income Ratio, Mortgage Lenders, Percentage Of Gross Monthly Income

Assessing Your ‘Debt-to-Income Ratio’ and Why This Number Matters When Getting a Mortgage

July 22, 2015 by George Duarte

Assessing Your Debt-to-Income Ratio and Why This Number Matters When Getting a MortgageIf you are looking to buy a home, you may want to consider shopping for a loan first. Having your financing squared away ahead of time can make it easier to be taken seriously by buyers and help move along the closing process. For those who are looking to get a mortgage soon, keep in mind that the Debt-to-Income ratio of the borrower plays a huge role in the approval of your mortgage application.

What is a Debt-to-Income Ratio?

A debt-to-income ratio is the percentage of monthly debt payments compared to the amount of gross income that a person earns each month. Your gross monthly income is typically the amount of money you earn before taxes and other deductions are taken out. If a person’s monthly gross income is $2,000 a month and they have a monthly debt payments of $1000 each month, that person would have a DTI of 50 percent. The lower the DTI the better. 43 percent is in most cases the highest DTI that potential borrowers can have and still get approved for a mortgage.

What Debt Do Lenders Look At?

The good news for borrowers is that lenders will disregard some debt when calculating a borrower’s DTI. For example, utilities, cable, phone and health insurance premium would not be considered as part of your DTI. What lenders will look at are any installment loan obligations such as auto loans or student loans as well as any revolving debt payments such as credit cards or a home equity line of credit. In some cases, a lender will disregard an installment loan debt if the loan is projected to be paid off in the next 10-12 months.

What Is Considered Income?

Almost any source of income that can be verified will be counted as income on a mortgage application. Wage income is considered as part of a borrower’s monthly qualifying income. Self-employed individuals can use their net profit as income when applying for a mortgage, however, many lenders will average income in the current year with income from previous years. In addition, those who receive alimony, investment income or money from a pension or social security should make sure and include those figures in their monthly income as well when applying for a loan.

How Much Debt Is Too Much Debt?

Many lenders prefer to only offer loans to those who have a debt-to-income ratio of 43 percent or lower. Talking to a lender prior to starting the mortgage application process may help a borrower determine if his or her chosen lender offers such leeway.

A borrower’s DTI ratio can be the biggest factor when a lender decides whether to approve a mortgage application. Those who wish to increase their odds of loan approval may decide to lower their DTI by either increasing their income or lowering their debt. This may make it easier for the lender and the underwriter to justify making a loan to the borrower.

Filed Under: Mortagage Tips Tagged With: Debt To Income Ratio, Mortgage Approval, Mortgage Loan Information

Next Page »
Sidebar View Lending Cert
NAMB Member Cert
Apply Now!
Mortgage Refinance Companies
NAMB
Veterans VABA Member
CMC Logo

Follow My Posts and Sign Up for My Newsletter!

Download Our App!



Horizon Financial Associates BBB Business Review

Connect with Me

Recent Awards

Mortgage Pros
2019 Best of Fremont 2017 Best of Fremont 2016 Best of Fremont
See More Awards →

Browse Articles by Category

Recent Articles

  • Understanding the Principal Limit on a Reverse Mortgage and What Happens if You Reach It
  • Mortgage Shopping And Your Credit Score
  • What To Know About a 40-Year Mortgage
  • What’s Ahead For Mortgage Rates This Week – August 15, 2022
Horizon Financial Associates is a BBB Accredited Mortgage Broker in Fremont, CA
Equal Housing Opp
CRB Logo REALTOR logo

Our Location


39488 Stevenson Pl
Fremont, CA 94539

Copyright © 2022 · Powered by MySMARTblog