Is Income Still a Lender’s Primary Gauge For Evaluating A Mortgage Loan?
June 30, 2008
It is without question that the most important component of the mortgage loan approval process is a borrower's income. A lender, now more than ever, is very concerned about how easy or how difficult it will be for the borrower to pay their mortgage debt in a timely manner. Therefore any history of a mortgage payment paid 30 days after it's due date will have an extremely adverse affect on a lender's decision to approve your loan.
The primary gauge for a lender when determining the ability of a borrower to pay their mortgage is to weigh the amount of income earned against the overall debt due on a monthly basis. This is known as the debt to income ratio or DTI. Generally a lender wants a borrower to earn just a little over twice as much gross monthly income as their overall monthly debt. Put differently the debt should be equal to or less than 45% of the overall income.
If you already own a big chunk of your home's equity or your credit score is outstanding (over 700 points) then your DTI ratio might be allowed to go higher for qualification purposes, but a good rule of thumb is that the borrower should earn twice as much as what they owe each month.
The debt calculation includes the mortgage, property taxes, homeowner's insurance, credit cards (monthly minimum due), car payments and any other revolving or installment debt.
Furthermore you must be in the same line of work for a minimum of two years. Not necessarily at the same job, but in the same line of work. If you have switched careers, you might have difficulty qualifying.
If you do not meet the above criteria you can still get a loan, but in order to get the BEST rates, in order to receive the coveted A Paper Prime Mortgage Loan, the above income parameters apply.
One interesting note for borrowers living on their retirement income is that if you are collecting social security, for loan qualification purposes your social security payment will be raised to 125% of the amount you receive each month. This also applies to other net income type money received; such as disability. The reason for this allowance is because for those that are still working employment income is calculated as gross annual income divided by 12 to get a monthly tabulation. Since social security, disability, etc. is received as net income these income sources are "grossed up."
By now you must realize that there are many nuances to the loan approval process, especially when it comes to income verification. That is why it is so critical to work with an experienced loan officer.
My name is Allen Sayble and I have been a loan officer since 2001. I specialize in poor credit home loans for borrowers with less than stellar credit and income situations, but also work with refinances and purchases for borrowers in good standing. I am based out of Ashland, Oregon and can write Oregon Home Loans and offer you California Home Loan Mortgage Rates. At this time in the mortgage business it is most important for each borrower to work with a professional loan officer. It's also best to work with a broker, like myself, who has access to all of the different lenders and not be restricted to one lending institution or bank. Please visit my website http://www.mortgageconsumer.com to learn valuable information about the loan business so that you can be well informed about the loan process and make the most educated decision with regards to your loan. You can also contact me at 541-324-9623
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