An Explanation Of Income To Debt Ratio For MA Financing Pre-approvals

Personal finances play a significant role in loan approvals. All mortgage companies review your assets, earnings, credit and debts. These determine whether you can obtain a mortgage and how much of a mortgage you may be able to obtain. The following is an explanation of income to debt ratio for MA financing pre-approvals.

Evaluating Income

Lenders will consider your gross monthly earnings. This includes recurring items that can be verified. Earnings from work are the most common source of income. You will be required to furnish documents (such as tax returns) for the last 2 years, giving them a sense of consistency. They may ask for explanations for any unusual items, such as changes in salaries or inconsistent figures. Additional sources of income may include alimony, investments, and stocks. Any items that you would like counted must have valid documentation. A history of earnings and likelihood of future earnings can be important. The verification criteria can vary among lenders and certain exceptions may also be allowed. It is important to tell your loan officer about all possible sources to know what can or cannot be used.

Debt Analysis

Debt describes all recurring obligations such as charge cards and loans. The specific payment amount on loans and other structured debt are used. For adjustable debt like credit cards, minimum monthly payments are applied. These figures are usually listed in your credit report. Some lenders may agree to ignore debts with under a year remaining in payments or that you can prove someone else is responsible for. The amounts are added up to figure out total monthly obligations.

An Explanation Of Income To Debt Ratio For MA Financing Pre-approvals

Lenders compare the total income to debt for the income to debt ratio, which must remain within a certain amount. Furthermore, mortgage payments plus your monthly debt must also remain within a specific percentage for loan approval. The exact percentage varies for each lender and from program to program.

For instance, a lender may allow 28 percent for mortgage payments and 40 percent for total debt. Based on this example, a borrower making 60,000 annually (5,000 per month) may be approved for a 1,400 per month mortgage payment and 2,000 per month in total debt. Bear in mind that this is strictly an example and includes only the income versus debt part of the financial analysis that can be completed. There are additional factors, such as credit rating and program specific requirements. It is important to speak with a local lender for guidance on income to debt ratio for MA financing pre-approvals for your personal finances.

About Editor-John P. Wells

I am a resident of Newburyport and have worked in education, high tech and urban development. My interests in architecture and construction are invaluable to my clients. For more information please visit the Wellsco website.