Personal finances play a big role in loan pre-approvals. All finance companies examine your assets, earnings, credit and debts. These determine whether you qualify for financing and for how much. Below is an explanation of income vs. debt ratio for MA financing pre-approvals.
Lenders will calculate your total monthly income. This includes only items that can be verified. Salaries are the most common form of income. You will be required to furnish paperwork (such as W-2 forms) for the previous 2 years, giving them a sense of consistency. They may ask for explanations for any unusual items, such as changes in earnings or inconsistent figures. Alternate types of income may include alimony, investment properties, and stocks. Anything that you attempt to report as income must be verifiable. A history of earnings and likelihood of future earnings is obviously helpful. The verification criteria may vary among lenders and some exceptions may also be allowed. It is important to tell your lender about all possible income sources to figure out what can or cannot be used.
Debt describes all monthly obligations such as charge cards and installment loans. The exact payment amount on loans and other structured debt are used. For adjustable items like credit cards, minimum monthly payments are entered in the calculations. These figures are typically noted in your credit report. Some lenders may agree to ignore debts with less than a year left or that you can verify another party is responsible for. Payment amounts are added up to figure out total monthly obligations.
An Explanation Of Income Vs. Debt Ratio For MA Financing Pre-approvals
Lenders compare the total income to debt to come up with the income vs. debt ratio, which must remain within set limits. Additionally, mortgage payments and your monthly debt must also not exceed a certain percentage for loan approval. The particular percentage will vary among financing companies and from program to program.
For example, some companies might limit your total mortgage payment (principal, interest, taxes, and hazard insurance) to remain under 28 percent of your gross monthly income. They may also not allow all debt to exceed 40 percent of monthly income. Based on this example, a borrower making 60,000 per year (5,000 monthly) would be allowed up to a 1,400 per month mortgage payment and 2,000 per month in total debt. Keep in mind that this is strictly an example and considers only the income versus debt part of the financial analysis that can be performed. There are additional factors, such as credit history and program specific requirements. It is essential to speak with a local loan officer for advice on income vs. debt ratio for MA financing pre-approvals specific to your personal finances.