People with bad or unfavorable credit, a good income, or anyone wanting to buy a home in this competitive, Southern California real estate market, tends to get a bit nervous about securing a home loan. They may not be sure how much they can afford, the cost, down payment or even if they will qualify for a home loan. With the help of a knowledge real estate agent, and loan officer, the underlying cause of the issues can be assessed. They can point a potential buyer in the right direction.
Bad credit does not mean a prospective home buyer will not be able to buy a home. However, because interest rates and fees are typically higher, it is beneficial to the borrower to find the best lender to analyze and offer the best options. Lenders look for the debt amount a potential borrower can handle according to the borrowers income, employment and credit history. A person’s credit score is an assessment of his or her risk at a precise moment in time.
There are financial institutions willing to secure loans. Nevertheless, there are criteria that need to be completed, before the journey of home buying begins. A major criterion for securing a home loan, when you have bad credit, is the borrower’s ability to make payments. Naturally, higher income borrowers have a better chance of convincing the financial institution to lend.
Traditional lenders may not be the best choice for borrowers with unfavorable credit scores. Traditional lenders set interest rates based on the borrower’s credit score. High-income borrowers can also encounter problems with traditional lenders. The lender is looking for borrowers with a stable financial future.
Going forward, the mortgage cannot be above the lenders budget as to cause the borrower to fall into deeper financial woes. Debt to income ratio is a comparison of a consumer’s monthly debts expenses to the amount of income. Calculate this ratio by adding up all monthly payments and dividing the monthly debt repayment by the gross income, then multiplying that total by 100 to obtain a debt-to income ratio.
The debt-to-income ratio of a potential borrower making $75,000 per year, paying out monthly debts totaling $4,000 per month, is $75,000 divided by 12 months. The total is $6,250. Dividing $4,000 (total debts) by $6,250 (total income) gives a total of 0.64 or 64%. The debt-to-ratio varies among lenders but is usually between 36 to 40 percent. Since the above-calculated amount is above 40 percent, the potential borrower would have to avoid taking on more debt, increase the amount paid on a monthly basis, or postpone large home buying purchases until the debt- to- ratio decreases.
Elizabeth Marquart is Southern California’s real estate expert and home improvement project manager of choice. She always provides reliable and diligent real estate representation-all with the highest degree of integrity. Visit www.ElizabethSells.com or contact her for any real estate and home improvement questions by calling (310)246-0888 or at AskElizabeth@ElizabethMarquart.com.