Debt Ratio

Debt Ratio

The debt ratio is a financial metric that compares your total debt to your total assets. In this context, your debt includes recurring monthly payments, such as credit card bills, loans, and your mortgage. Your total monthly pre-tax income—comprising salary, wages, tips, child support, social security, and other income—represents your assets. The debt-to-income ratio is calculated by dividing your total debt by your total income, resulting in a percentage.

When applying for a mortgage, the debt-to-income ratio is a critical factor for lenders. While a high credit score indicates that you are capable of making timely payments, a high debt ratio raises concerns. A high debt ratio suggests that you may be operating close to your financial limits, which can make lenders apprehensive about your ability to manage loan payments in the future.

Generally, the maximum acceptable debt-to-income ratio for qualifying for a mortgage is typically around 43%. However, some larger lenders may be willing to consider borrowers with a higher ratio, depending on other qualifying factors. Understanding your debt ratio can help you gauge your financial standing and improve your chances of securing a mortgage.

FHA Funding Fee

FHA funding fees are insurance premiums needed to secure your loan. How much you pay depends on your loan size, term, and down payment amount.

Second Mortgage

Second mortgages are loans secured by property already used as collateral for a home loan. They can be a home equity loan or a home equity line of credit.

One-Time Close Loan

The FHA One-Time Close Construction-to-Permanent Loan is a government-backed mortgage for one-unit stick-built homes, new manufactured homes, and modular homes.

Closing Checklist

Closing checklists help you keep track of what needs to be done before closing on a home. They include items like payments to make and documents to sign.

Related Questions & Answers

What DTI Do I Need for a Mortgage?

In order to qualify for a mortgage you will generally what to keep your debt-to-income ratio below the following levels. 36% – 49%: A DTI in this range suggests that while a significant portion of...

Related Mortgage Articles

How Much Home Can You Really Afford?

Imagine this: after months of searching, you finally find your dream home. It has a big yard for the dog, a basement for the kids, the perfect room for your home office, and it’s in...

avanti way financial logo