that accommodate this kind of employment income more easily than others.
The Debt-to-Income (DTI) ratio
The debt-to-income (DTI) ratio is a mathematical calculation of how much a person is required to pay debts each month compared with their total monthly income. For example, a borrower has a $1500 mortgage, a $400 car loan/ 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 $1,200,000. If the DTI ratio is at the high end of the parameter for a particular loan instrument a lender may be able to apply compensating factors, such as credit scores greater than 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
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