Palmdale Mortgage

Lenders ask two basic questions about the borrower’s ability to pay. First, is the borrower’s income large enough to service the new expenses associated with the loan, plus any existing debt obligations that will continue in the future? Second, does the borrower have enough cash to meet the up-front cash requirements of the transaction? The lender must be satisfied on both counts.

The lender verifies the borrower’s income in terms of two ratios that have become standard in the trade. The first is called the “housing expense ratio” and is the sum of the monthly mortgage payment including mortgage insurance, property taxes and hazard insurance divided by the borrower’s monthly income. The second is called the “total expense ratio” and it is the same except that the numerator includes the borrower’s existing debt service obligations. For each of their loan programs, lenders set maximums for these ratios, such as, e.g., 28% and 36%, which the actual ratios must not exceed.

 Maximum expense ratios can vary  from one loan program to another. If you are only a little over the limit, nothing more may be required than to find another program with higher maximum ratios. This is a situation where it is handy to be dealing with a mortgage broker who has access to loan programs of many lenders.

One program maximum expense ratios may vary with other parts of the transaction, and this can work against you.  Say that the maximum ratios are often lower (more restrictive) for some  program “modifications”, such as, the property is 2-4 family, co-op, condominium, second home, manufactured, designed for investment rather than owner occupancy, the borrower is self-employed, the loan is a cash-out refinance, and combinations of any of these.

There are many different criteria that are pluses and minuses in the ultimate pricing of a loan. Just like a high credit score can save you money a low score can cost you.