At Present, What’s Your DTI Ratio? How Does a High Debt to Income Ratio Hurt Your Chances of Getting the Mortgage You Need?

You probably know that your credit score affects the home mortgage rates you are eligible for. But did you know about your Debt-to-Income (DTI) ratio? The Debt to Income Ratio helps lenders to decide whether you can take on another monthly payment. It can play a role in loans of all types, from personal loans and student loans to fixed and adjustable-rate home mortgages.

What bills do lenders usually use to determine your DTI ratio?

Some lenders use their own formula to calculate a DTI ratio, but most DTI calculations add up the following payments:

  • Rent or house payment
  • Alimony or child support
  • Student, car loan, and credit card monthly payments
  • Other debt payments

Most DTI ratio calculations don’t include other bills you have to pay, like food, utilities, transportation, and taxes.

How do you calculate your DTI based on your income and payments?

Add up your DTI qualifying payments, including your rent or house payment, alimony, child support, and other loan and debt payments. Divide this total by your monthly gross income, which is your income before taxes. The number you’ll come up with will be your DTI ratio.

If your DTI is 35% or lower, you’ve got a good DTI ratio and lenders will view your applications favorably. Moving into a higher range of 36% to 49% DTI, your debt is running the risk of being too much. Lenders will probably ask for additional criteria to qualify you for a home loan. You can also work to reduce your DTI if it’s over 35%.

At 50% DTI or higher, you are paying half of your income toward the debt that you owe. This high amount leaves you vulnerable financially. You can still get a home loan with a 50% DTI ratio under specific circumstances. Some lenders can be flexible with DTI ratios. This is another reason to work with an experienced mortgage specialist who has worked with a number of mortgage lenders. They can help you understand your DTI and what loans you can qualify for.

Sources

https://www.wellsfargo.com/goals-credit/smarter-credit/credit-101/debt-to-income-ratio/

 

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Will Lower 30-Year and 15-Year Fixed Rate Mortgages Help You Buy The Home You Need This Year?

Average mortgage rates might not determine the 30-year fixed rate or 15-year fixed-rate home loan you will get, but they can let help you decide how to plan for buying a home or help you get the best home you can buy. In October 2019, Freddie Mac, the Federal Home Loan Mortgage Corporation, announced that the average 30-year fixed-rate mortgage for the past 12 months was 3.65%. What does this mean? 3.65% is a low mortgage interest rate. In 1970, the New York Times reported that the average 30-year fixed-rate mortgage was 8.5%. Mortgage rates even went up to 18.63% in 1981. In recent years, the lowest level was 3.31% in 2012.

Most experts are predicting that home mortgage rates, whether for 30-year fixed-rate or 15-year fixed-rate home loans, are going to be similar or lower in 2020. What does this mean? You can plan to buy a home in 2020, and you’ll be likely to get a low-interest rate. Fannie Mae, the “sister” agency to Freddie Mac, predicts that 2020’s average 30-year fixed-rate mortgage interest will be about 3.4%.

What is influencing mortgage rates?

When U.S. Treasury certificates yield low-interest rates, mortgage interest rates tend to also stay low. The number of loans also influences future mortgage rates. Refinances in 2019 increased 133% between 2018 and 2019. The trend is expected to continue into 2020 supporting ongoing lower mortgage interest rates. After ongoing housing price increases starting in 2013, housing price increases are beginning to slow, but they’re not stopping. Finally, new housing construction is continuing. Ongoing new construction supports mortgage availability.

As a result, most experts are predicting that 30-year fixed-rate and 15-year fixed-rate home mortgages will be at similar low-interest rates throughout at least the first two quarters of 2020. Yet another reason why you should work with a qualified mortgage broker to help you get the best possible 30-year fixed rate or 15-year fixed-rate home loan.

Sources

https://www.forbes.com/sites/alyyale/2019/10/04/will-mortgage-rates-stay-low-through-2019-heres-what-experts-predict/#6170156e279c

https://www.nytimes.com/1981/04/28/business/mortgage-rate-at-8.5-in-1970.html

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What is the Best Mortgage Advice You Ever Heard? How Big Should Your Monthly Mortgage Payments Be and More

Buying a house is one of the biggest financial decisions most people will ever make. We’ve put together a few tips from people who’ve done it successfully.

Get multiple quotes from multiple lenders without multiple credit inquiries or hard hits to your credit

You can improve on your interest rate by having your application shopped across multiple lenders, but not having your credit run multiple times.  This is very easy when working with an independent mortgage broker.  Since the independent mortgage broker is working on your side.  They take your loan application and when the independent mortgage broker runs your credit they can then shop with multiple lenders to get multiple quotes giving you the best options. Lenders are aware you’re applying for loans with more than one lender when you’re working with an independent mortgage broker, who submits your loan applications.

Since the Independent Mortgage Broker WORKS for the CONSUMER and NOT the LENDER, they have several choices from where they ultimately send the loan to. Since the lenders are getting a lot of business from the independent mortgage broker they are likely to be more diligent in responding to your application. Also, the very lowest mortgage interest rate may not be the very best choice for you. Working with a knowledgeable independent mortgage broker who can apply with multiple lenders will also give you a good idea of which lender is the best communicator and best to work with overall for your unique situation.  Since different lenders are better for different borrower situations.  Such as quick fast closing timelines, and streamlined limited paperwork, for situations where time is of the essence.  Or other lenders that may provide the rock bottom cut-throat discount rates but require a ton of paperwork and letters of explanation and extensive income documentation, those lenders may be a good option if the borrower/consumer is not in any hurry and can afford to delay closing and is willing to come up with all the needed paperwork.  So working with a mortgage broker helps the consumer navigate the sea of lenders and loan product choices out there.

If you’re concerned about multiple credit inquiries reducing your credit score, this is also why a mortgage broker is a great option since this reduces multiple inquiries on your credit report.  With a single credit report run by a mortgage broker that broker can shop your loan with dozens of lenders, without any additional credit inquiries or hits to your credit report.

Lock in your home loan interest rate for the longest-possible time needed

You may not have even heard the word “escrow” before you started looking for a home to buy, but it can last longer than you may think. When you’re applying for a loan, go ahead and lock in the rate for the longest time your lender will allow, depending on the situation. You don’t want to be surprised with a higher interest rate and higher payments at the close of escrow should interest rates go up while you are floating.  It’s also best to get your Realtor Real Estate Agent introduced to your Independent Mortgage Broker earlier on in the home buying process.  When they are both on the same page things run smoothly.  You may be able to out-negotiate other buyers and get that home you really want since your Realtor would know from the Mortgage Broker how quickly they can close.  This would help when writing the purchase offers, since your agent can offer the seller shorter contingency time frames, where your loan can close quickly with a shorter escrow, making you stand out above the competition of other home buyers.

 

Keep your mortgage payment under or close to one paycheck

This is one of the simplest forms of mortgage advice and overall, the most reliable. No matter what the future holds, you can plan financially to manage a mortgage payment that equals one paycheck (if you’re paid weekly). If you have a two-income household and are paid twice a month, the same advice holds true.

Sign for a mortgage that will let you save for retirement

Think about how you will best be able to save and invest your money. If your mortgage payment will allow you to save $1,000 a month and you can invest it at an average rate of 6%, you’ll build up a substantial retirement fund. Even if your home increases in value, chances are you’ll have a more secure retirement if you allocate your money this way.

And finally, get preapproved for a mortgage before you start home shopping. Few things are more frustrating than being uncertain of how much you can offer on a home, and losing the home you really want to a buyer who’s been pre-approved and is prepared to make a better offer.

Sources

https://www.realtor.com/advice/finance/best-mortgage-advice-ive-heard-ever/

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