In today’s tough economy, many people are applying for a mortgage to purchase their dream home. Applying for a mortgage is arguably one of the most significant financial undertakings you will have as an adult.
The outcome of your application primarily depends on different ratios. This will be explained in detail by a mortgage officer at a Lake Dallas institution you choose for your loan like PRMI Dallas. Here are the three primary ratios that influence mortgages.
Debt-to-income ratio determines how much you can manage to pay on your monthly loan repayments. A debt-to-income ratio denotes the percentage of your total monthly earnings vis-à-vis the total amount of debt you are repaying monthly. To increase your chances of a high mortgage amount, you can pay off a huge chunk of your existing debts before filing a mortgage application.
Your loan-to-value ratio is computed by dividing your loan by your property’s appraised value. A low loan-to-value ratio boosts your chances of a low-interest rate since you are viewed as a less risky debtor compared to those with high loan-to-value ratios. People with an elevated loan-to-value ratio typically attract high mortgage insurances and stricter terms to protect their lender in case they default payment.
Cost-to-income ratio covers several costs associated with a mortgage. Apart from your monthly repayments, these costs include taxes and insurance. If your overall monthly mortgage’s costs surpass 25 percent of your gross income, most lenders will advise you to opt for a lower mortgage since this can be a financial burden for you.
Start saving early for your home’s down payment. If the above ratios are good for you and you have a considerable down payment amount, you can boost your odds of getting a good mortgage amount. More importantly, your lender will be more likely to offer you loan terms that are more favorable to you.