$400 car loan, $500 in student loan payments, and another $600 of miscellaneous responsibilities (car insurance, credit card payments, etc.). That borrower has debt that totals $3000 per month. Let’s also assume that 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 $6000 in income. For major lenders, i.e. large banks that sign thousands of mortgages per year, this debt-to-income ratio is too high to get what’s referred to as a “qualified mortgage.” A qualified mortgage is a loan that is considered to be the most stable and at the lowest interest rates. Lenders like qualified mortgages because they are the ones that are most likely to be paid in full on time. In general, the highest debt-to-income ratio for which a mortgage lender will give a qualified mortgage is 43%. Anything higher than that will require special circumstances and significant underwriting, or the borrower will get a non-qualified mortgage (or get rejected for the loan). However, smaller lenders can still give qualified mortgages with higher debt-to-income ratios. A smaller lender is an institution that has less than $2 billion in assets and signs no more than 500 mortgages in any given year. These are your local banks and independent loan brokers.
DOWN PAYMENT
The down payment of a home is the amount of cash a borrower is going to give the bank immediately towards the property. The larger the down payment, the less amount of money the borrower owes the bank and the less money they will spend on interest over the years.
It is in the borrower’s best interest to hand over as much cash as
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