Here is a quick guide to help you with the mortgage financing process towards home ownership. There are many factors which facilitate qualifying a first-time home buyer for a mortgage loan. The three main factors are credit score, debt to income ratio, and loan to value ratio.
Credit Scores
Your credit scores are based on information drawn from your credit report. About 30 different factors are used to determine your credit score. Some factors hold more weight than others.
Some of these include:
The better your credit scores are, the more programs you qualify for. If it makes sense to improve your credit scores, we are more than happy to refer you to companies which can help you raise your scores.
Debt to Income Ratio
The Debt to Income Ration (or DTI) is calculated by comparing the candidates’’ total monthly debt to their total monthly verifiable income. We determine your monthly debt by tallying the debts reported on your credit report and adding your new mortgage payment to that. Your total monthly income is determined by reviewing your last two years of W2 statements and recent pay stubs, or personal income tax returns if you are self-employed.
The DTI is used by underwriters to determine a candidate’s ability to repay the mortgage loan. The underwriters also want to make sure that your new mortgage payment does not become too much of a burden to you.
Loan to Value Ratio
The loan to value ration (or LTV) is calculated by comparing the size of the mortgage loan to the value, or purchase price of the home. This ratio is used to help determine the level of risk the mortgage programs offer based on the LTV. The higher the ratio, the greater risk to the lender. While most lenders prefer for a candidate to put down 20% as a down payment, other programs exist where you are not required to give as much of a down payment.
