To determine how much money you will pay the bank for a mortgage, an insurer will assess your debt to income ratio, the value of the property and your history of credit. The lending bank will also want to abide by the three Cs of credit, capacity, capital and character, demonstrating your ability to repay loans, sufficient assets to repay the loan in the absence of income and your payment history accounts as shown in your credit report.
The loan to value (LTV for short) is a critical consideration in the decision of a bank not only to lend money, but also to decide how much you pay for the mortgage. The LTV ratio is expressed as a percentage and represents the connection between the appraisal of the property and the total amount of required mortgage loan.
If you are making an advance payment of US $ 26,000 for a household with $ 130,000 US price, the total required loan is $ 104,000 US. The LTV is calculated by dividing the mortgage amount (US $ 104,000) between the estimated market value (US $ 140,000), and multiplying the result by 100, getting a result of 74%.
More about relationships LTV
Most lenders are comfortable with LTV ratios less than 80%, which means they are willing to lend up to 80% of the required amount. Some lenders may be willing to offer up to 90% or 100% loan if you represent a low risk and have good credit history, but this might require you purchase private mortgage insurance.
Debt to income ratio
It is understood that lenders are more concerned about your ability to repay the mortgage loan. Your debt to income ratio (total income compared against your total expenses) has great weight in deciding the amount of money the bank will lend you for the mortgage. There are two types of debt-income ratios examine the lender, the front and rear.
The frontal relationship is sometimes called housing costs, it shows how much money before taxes would be required to make payment of your mortgage. Typically, banks prefer that the total monthly payment on your mortgage (including interest, capital and insurance) does not exceed 28% or 29% of your gross monthly income.
For example, if your gross annual income is US $ 70,000, you could calculate your front ratio multiplying that amount by 0.28 or 0.29 (depending on the lender) to arrive at an approximate figure of US $ 19.600, which will be divided between 12 months to calculate the desired monthly mortgage payment.
The subsequent relationship, or ratio of total debt to revenue ratio shows how much of your monthly income before taxes is required to cover your monthly debt obligations, including mortgage payments, loans for car maintenance partner and children, student loans and credit card accounts.
For most lenders, your monthly debt obligations should not exceed 36% or 41% of your gross monthly income. If the bank allows a limit of 39%, you can calculate your back ratio by multiplying your annual salary (US $ 70,000) by 0.39 and divide by 12 months to arrive at a figure of US $ 2,275, which represents the acceptable amount of debt to income ratio.