When you’re planning on purchasing a home, one of the main things you have to assess is your purchasing power. Why? Because by understanding the vital numbers that significantly impactyour mortgage worthiness to lenders, you increase your chances of being approved and securing your dream property.
Your Credit Score
Credit score is among the top determinants of purchasing power for lenders like Bonneville Multifamily Capital. With this, they could better gauge your capacity to repay your monthly home loan payments regardless if you’re looking to get a conventional loan or a Freddie Mac multifamily loan. Although a low score such as 620 does not instantly equate to being denied a mortgage, it would affect the terms of the mortgage you’re going to get. The higher your credit score, the better your interest rate and loan terms.
Your Debt to Income Ratio or DTI
Mortgage lenders need reassurance that you’re capable of repaying your home loan in addition to your other existing debts. They’ll be looking at your housing ratio or frontend ratio, which ideally should be below or at 28%. Then, they’d check your debt to income ratio backend ration to figure out the amount you spend every month to service your debts, which ideally must be below or at 36%.
Your Home Deposit
The 20% down payment rule, wherein you put down 20% of the purchase price of the property you’re buying. Putting down a 20% home deposit could eliminate the requirement for PMI or private mortgage insurance and enable you to negotiate better terms, such as a reduced interest rate.
Lenders would require that you submit documentation of your assets to show where your down payment funds would be sourced and if you currently have investments and savings. Essentially, lenders would assume that you could afford your loan costs and your other financial obligations if you have ample cash reserves and investments.
The Main Takeaway
Being aware of how these numbers impact your chances of getting a loan could mean the difference between getting the best deal possible and getting a loan with dismal terms. That being said, you should make the necessary changes, if applicable, before shopping for a loan to make certain that these numbers would be in order once your lender looks into them.