lease, $500 in student loan payments, and $600 of miscellaneous responsibilities (credit cards, charge cards, personal loan, etc.). These debts total $3000 per month. The borrower makes $72,000 a year, or $6000 per month. A lender would calculate the debt-to-income ratio of this borrower as 50%, since $3000 of debt is 50% of the $6000 income. Mortgage lenders adhere to different guidelines for (DTI) ratio based on the program and the loan amount. A conforming loan of $450,000 may well have a higher allowable DTI than a non- conforming (jumbo) loan of $1,400,000. If the DTI ratio is at the high end of the limit for a particular loan instrument a lender may be able to apply compensating factors, such as credit scores above certain levels, cash reserves that are substantially more than the requirement for a particular loan, or other factors such as a low Loan to Value, to mitigate the perceived risk and lead to an approval.
Down Payment
The down payment is the amount of cash a borrower is going to give the bank immediately towards the purchase. Providing a down payment of 20% or more can lead to advantages such as lower monthly mortgage payments, reduced interest costs over the loan term, and potentially avoiding private mortgage insurance (PMI). Some larger loan amounts will require a down payment of more than 20% There are instruments which allow for zero down payment such as USDA and VA. Fannie Mae's Home Ready Program, Conventional 97, Freddie Mac's Home Possible, and Home One require as little as 3% down. The FHA requires a minimum of 3.5% as a down payment. It is essential for borrowers to evaluate
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