There are three numbers that matter the most when it comes to a home loan application. They are your credit score, your debt-to-income ratio, and your loan-to-value ratio. These specific numbers matter because they affect your ability to qualify for a home loan as well as your interest rate for the loan.
This article will give you a quick overview of those numbers and how they affect your mortgage.
Need more specific information? We’re here to help! Use our contact form and a mortgage professional will be in touch soon.
Your Credit Score
You’re likely familiar with this number. A credit score, also sometimes called your FICO score, is a three-digit number between 300-850. This number scores your borrowing history. It’s independently calculated by each of the three main credit bureaus (Experian, Equifax, and TransUnion) using your payment history, your current debt, your credit limit usage, along with other factors.
When you apply for a mortgage, we request your credit score from one or all of the bureaus using a” soft” or “hard” credit check. A “soft” check does not affect your credit score and is done early in the application process, such as during pre-approval. A “hard” check will have a minor impact (lowering by about 5 points) on your score, so it’s done when you’re ready to apply.
Your credit score helps to estimate your ability and the likelihood of you paying back your home loan. The various mortgage programs have a minimum credit score with government loans having the lowest score requirements.
Your score matters because it affects the interest rate you can get. The higher your credit score, the better the interest rates will also be.
Your Loan-to-Value Ratio (LTV)
Your LTV is a way to measure the amount of equity in your home. You can think of it as the percent you still owe towards the principal to fully own your home. The way it works is that the higher your LTV ratio is, the more you’re borrowing.
Here’s how to calculate your LVT yourself: First, subtract the down payment amount from the value of the property. Divide that number by the value of the property. For example, if the home has a value of $200,000 and you put $20,000 down, then your LVT is 90%.
You can also calculate your LTV by subtracting the down payment percent from 100%. For example, if you’re down payment is 20%, then your initial LTV is 80%. Why this number matters There’s often a maximum LTV when you’re buying a home (you can also think of this as the minimum down payment).
The exact LTV max depends on factors such as the property type, loan amount, and whether you’re a first-time homebuyer. If your LTV is higher than the limit, that means that either you’ll have to increase your down payment or look for a lower-priced property. Another thing to keep in mind with regards to your minimum down payment is that if put less than 20% down, you’ll be required to pay mortgage insurance.
Your Debt-to-Income Ratio (DTI)
Your DTI helps determine how much you can afford to pay every month given your current monthly payments. We calculate this number by adding up your existing monthly debt plus what your mortgage payment will be once you have your new home and then dividing that number by your gross monthly income. Why it matters The DTI help to set a limit to make sure that you can comfortably afford your mortgage now and in the future.
This number is critical in qualifying for a home loan. A high DTI is the most common reason mortgage applications are declined. DTI limits vary by lender and our firm is proud to offer more flexible limits than most competitors. Want to talk more numbers? GIve us a call! We can talk you through your numbers and help you determine the best course of action for getting a home loan at a rate you can afford. Schedule a conversation with Tara Mortgage Services today!
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Our goal is to get your home loan to close as quickly as possible –we know that when it comes to making an offer on your dream home, time is crucial. Did you know that you also play an essential role in making your loan close fast?
Here are the most common causes that delay home loan approval and closing:
#1: Missing Financial Details
We don’t need to know your entire financial history, but we will need to see every detail from the past two years. Don’t worry; we’ll let you know precisely what you need to provide, making sure that everything moves as quickly as possible.
#2: Leaving Out Documentation
The documentation needed for your loan may vary (and we’ll let you know what your loan calls for) but keep in mind that we’ll need the following:
Tax returns and W-2s from the past two years (or year-to-date financial statements for the self-employed)
Last month’s pay stubs
Two months of bank account statements
Copy of any transactions that exceed $1,000 Home insurance quote
Financial details of any other homes, businesses, or vehicles that you own
If anything significant pops up when we check your credit, we’ll need documentation for this as well.
#3: Mistaking Pre-Qualified For Approval
Pre-qualified requires minimal information from you. It’s a great way to get an idea of how much you can afford to buy, but it doesn’t mean that your loan is approved. Applying for a loan, getting approved for the loan, getting the underwriting approved are the additional steps that need to happen before your loan is approved and can take the step toward closing. Don’t let this discourage you! We take care of all the heavy lifting and make sure that it moves along quickly. All we need from you is to get the ball rolling by applying for a mortgage.
#4: Not Sharing Details Of The Offer With Us
When you buy a home, the purchase contract will layout certain financial milestones that we need to know about, such as by when your loan approval should be secured and how many days you have to close. If we miss any of these dates, not only will it delay your loan but it could cause you to lose the home!
#5 Making Big Changes to Your Finances or Career
Changing jobs, opening a new line of credit, making big purchases, or loaning your friend 3k to start up their business changes your financial portfolio. This means that adjustments must be made and you may not qualify for as much as you originally were quoted. The application process, essentially, needs to start over –delaying your home loan and delaying closing even more.
There are many more factors that could delay your home loan, things that are out of your control. Rest assured that we will be with you, ready for any surprises, minimizing any unnecessary delays.
Contact Tara Mortgage Services today to partner with a home loan specialist that has your best interest in mind!
ALEX DEACON’s NOVEMBER REAL ESTATE WORKSHOP HAS BEEN ANNOUNCED! CLICK BELOW FOR DETAILS, TO RSVP, AND TO CONNECT WITH NEARLY 600 REAL ESTATE PROFESSIONALS!
Virtual Bus Tour of Current and past rehabs
Saturday, Nov 10, 2018, 10:00 AM
Hampton Inn Bridgeville 150 Old Pond Rd Bridgeville, pa
20 Members Attending
We have done a few actual bus tours in the past but with the strong turnout I dont like to have to turn down folks due to the high volume of requests. Our next workshop in November we will do a virtual tour of some current and past projects and show you where to spend your money wisely and where you can and cant cut corners in order to stay profita…
Looking to get a home equity loan but have a bankruptcy on your credit history? It may not be as bad as you think! Actually, it may be just the thing to help your credit recover. Find out the basics of a home equity loan and see how some of our clients are using it to help them bounce back after filing bankruptcy.
Need immediate help? Contact us via phone or use our online form, and we’ll have answers for you fast.
Home Equity Loans and Bankruptcy
Bankruptcy will appear on your credit history for about ten years. However, there are circumstances where you’ll be able to get a home equity loan much sooner than that. Each case is unique, so we encourage you to contact our office to review your needs.
Two issues that often lead to defaulting on financial obligations and make it difficult to recover:
high-interest rate loans
having multiple loans
That’s why many of our clients are looking for ways to consolidate into one, low-interest rate loan, and that’s what a home equity line of credit can do for you!
If you have a bankruptcy on your credit history or are on the verge of filing, you might want to consider a home equity loan as a way to pay off multiple debts and have just one easy loan to focus on.
What is a home equity loan?
A home equity loan taps into the equity, or accumulated value, of your property. The equity is determined by an appraisal, similar to the one you had when you first purchased your home. Once approved for your equity loan, sometimes called a second mortgage, you’ll be able to use your funds to pay off any outstanding debt.
Benefits of a Home Equity Loan
Interest rates on home equity loans are generally lower than other loans or credit cards. In fact, most of our borrowers use a home equity loan to pay for other items such as college tuition or medical expenses rather than applying for credit cards or getting a personal loan.
Home equity loans have flexible terms, offering you the choice between a fixed or adjustable rate. Another benefit is that the interest paid on a home equity loan is tax-deductible! The benefits of a second mortgage after you’ve filed for bankruptcy are also excellent.
Your single monthly payment will often be lower than your current multiple debts, making it easier to stay up-to-date with your obligations. And, after a few months of on-time payments, your credit score will begin to rise, helping your credit to recover!
Getting a home equity loan after bankruptcy can be a challenge, however, don’t let that discourage you! We have the experience and dedication to get loans approved in all sorts of financial situation.
RSVP To Alex Deacon’s FREE May Workshop Today! Limited seating is available!
Analyze a Buy and Hold Property. Its not all about the numbers.
Saturday, May 12, 2018, 10:00 AM
Hampton Inn Bridgeville 150 Old Pond Rd Bridgeville, pa
28 Members Attending
This workshop is one of the most important sessions if you want to learn how to analyze deals for buy and hold. Its not all about the ROI. There are many other factors to consider when you have a long term strategy. We will go into detail and look at various scenarios and different property styles and types. From an A area single family property to…