Realtime website statisticsrealtime web visitor analytics chat support

What Is Housing Ratio

HOUSING RATIO – WHAT IS IT?

Buying a new home is exciting, but there are plenty of factors that play a role in the approval. One of them is your housing ratio. This is the percentage of your income the lender feels you can allocate towards your home loan. It influences their decision as well as how much money they will approve for your household to borrow.

This is often referred to as the housing expense ratio or the front-end ratio. When you search for a home, a pre-approval is a good idea. It tells you if you can get a loan and how much you can borrow.

It doesn’t make sense to blindly look at homes and hope for the best! Knowing your price range lenders will assist you with making buying a home easier and more practical.

Check Out  Who Delivers Your Offer To The Seller

WHY IS THE HOUSING RATIO IMPORTANT?

housing ratio
This information helps lenders determine your risk. Can you reasonably afford the loan amount monthly on a home you have in mind? In addition to looking at your income, they look at your other expenses.

You may have plenty of money coming in, but if it also goes out quickly to pay other bills that can be a problem.

This calculation is important as it helps lenders see the bigger picture. Are you a risk for them to lend money to? A home loan is a long-term commitment. They don’t want to see you struggle each month to pay that bill.

And they don’t like to foreclose on homes and have to sell them to get some of their money back. They look for low-risk customers to lend funds to for the purchase of a home.

You may also like Is Biden’s First Time Homebuyer Act For You

Reverse Annuity Mortgage Banner Ad

HOW DO MORTGAGE COMPANIES USE THE HOUSING RATIO FOR LOANS?

When the lender calculates your ratio, they don’t take into account what you currently pay for housing. You won’t pay that any longer once you buy the new home. There are exceptions though such as if you plan to keep the house you live in and buy a second one.

Your income has to be enough to cover both mortgages. If you plan to rent the first home, you can count the rental income as part of your income for the ratio calculations.

Most lenders won’t approve a home loan if the housing ratio is over 28%. There are exceptions though. If your rate is higher than that, you may have to choose a different lender. Since the risk to them is higher, such a loan typically has higher interest.

They may require a larger down payment too. If you have a high credit score, they are more likely to approve your loan, even with a high ratio.

Mortgage lenders often look at the back-end ratio too. This is your DTI (debt to income) ratio. This is a calculation of your overall debts compared to your overall income. For the best outcome, it should be less than 36%.

Read 13 Tips On How To Survive An Upcoming Recession Today!



Many lenders strive to look at the overall picture of household finances, beyond just these calculations. Some have more flexibility than others.

An underwriter for any mortgage loan has the final say. This is a checks and balances system in place to ensure lenders aren’t giving money to those that can’t afford it.

They don’t want to see consumers with their backs against the wall, with loans they aren’t able to repay.

While you may really want a certain home, spreading your finances too thin can get you into financial trouble in a hurry. Expected expenses or changes in income can create issues you can’t recover from. This is why lenders are very particular about income and debt ratios for home loans.

HOW IS THE RATIO CALCULATED?

To determine the ratio, the monthly mortgage amount is divided by gross monthly income for the household. The mortgage amount includes the actual payment, insurance, and taxes.

If the property is a condo, there can be other fees including Homeowners Association added into that calculation. Monthly utility costs are estimated for the calculations.

There are free calculator tools online you can use to get an idea of your housing ratio. This information will assist you with choices for a home loan. You won’t have any surprises with what the lender finds either.

If your percentage is high, it may be worth it to work on paying down debts or increasing income before you seek a home loan.

You may enjoy reading RESPA Section 8 Explained

Reverse Annuity Mortgage Banner Ad

Disclaimer: This article is meant for educational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.

.

Who Delivers Your Offer to the SellerRESPA Section 8 ExplainedWhat Is a Guarantor

Tags: , , , ,
Previous Post

Easy Online Loans

Next Post

Know Your Tri Merge Credit Report

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Bad Credit Loans

Mortgage Loan Advocate

Home - 10 Options When You Are Behind On Your Mortgage - Best Loans For Financial Hardship - Best Mortgage Help Programs – Loan Modification - How To Get A Mortgage Loan Modification- Recent Posts

Copyright © 2021 The Sandy Valley Companies LLC- All Rights Reserved.

AFFILIATE DISCLAIMER: Some of the links on this website are "Affiliate Links". This means if you click on a link and make a purchase, at no cost to you, the site owner may be paid a referral commission. LEARN MORE

Terms Of Use - Privacy Policy

All rights reserved. MortgageLoanAdvocate.com is a registered service mark of The Sandy Valley Companies LLC. The Sandy Valley Companies LLC or MortgageLoanAdvocate.com does not offer loans or mortgages. MortgageLoanAdvocate.com is not a lender or a mortgage broker. MortgageLoanAdvocate.com is a website that provides information about mortgages and loans and does not offer loans or mortgages directly or indirectly through representatives or agents. We do not engage in direct marketing by phone or email towards consumers. Contact our support if you are suspicious of any fraudulent activities or if you have any questions. MortgageLoanAdvocate.com is a news and information service providing editorial content and directory information in the field of mortgages and loans. MortgageLoanAdvocate.com is not responsible for the accuracy of the information or responsible for the accuracy of the rates, APR, or loan information posted by brokers, lenders, or advertisers.

Is Biden's First Time Homebuyer Act For You - Who Delivers Your Offer to the Seller - What Is a Guarantor - Is A Reverse Annuity Mortgage For You - RESPA Section 8 Explained
error: Content is protected !!