Mortgage Fearbuster 7

Posted by  on Apr 06, 2010

Q: I'm sick of renting, and talked to a mortgage broker about getting a mortgage loan. He said my "ratios" are too high. What ratios?

A: Mortgage lenders use two expense-to-income ratios when approving home loans. The first ratio is the annual amount of your housing expense, including P&I payments, real estate taxes and insurance, divided by your gross income. The result is a ratio expressed as a percentage of your annual gross income. Your housing expense to income ratio should not exceed 28%. Your debt to income ratio, which is the monthly amount of all debt payments including estimated housing expense, divided by your annual gross income. FHA loans allow approximately a 41% debt-to-income ratio.

Q: OK, so how can I lower my ratios? They're about 30% and 45% now.

A: There are two ways to lower your housing ratio. You can get a smaller mortgage with lower payment, buy a less expensive home, or make a larger down payment to achieve a housing expense to income ratio of less than 28%. As for your debt-to-income ratio, your best option is paying down debt. If you're short on cash for a down payment, look into local and state programs for first time homebuyers. Learn more about down payment assistance programs from mortgage lenders and real estate professionals.


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