Mortgage Ratios and The Home of Your Dreams
November 4, 2009 by Customer Care
Mortgage Ratios and The Home of Your Dreams in Des Moines, by Des Moines Real Estate Experts RE/MAX Real Estate Concepts
Acceptable ratios are the key to affording the home of your dreams. A ratio calculates debt and income. Banks and other lending companies use two different ratios to determine if a borrower is able to afford the requested mortgage. The resulting percentage of these ratios determines the eligibility of the buyer.
The first ratio a lender looks at when considering a mortgage loan application is the “housing expense ratio.” This figure takes into consideration all of the expenses associated with a specific property. A percentage is then calculated by dividing the borrower’s monthly income with the total figure associated with a specific home. The cost of owning a home is greater than the purchase price. Some additional expenses included in calculating the “housing expense ratio” in Des Moines are:
- Mortgage principal
- Mortgage interest
- Taxes (property, school, local assessments,)
- Insurance (hazard or home owner’s, mortgage)
- Home Owner’s Association fees
The other ratio a lender considers when determining a borrower’s ability to repay a mortgage loan is called the “total expense ratio.” This figure calculates all of the items found in the “housing expense ratio” plus all other current debt obligations of the buyer. This figure is then divided by the gross income of the buyer to come up with a percentage ratio.
If a buyer does not have an acceptable ratio to qualify for a mortgage, there are three ways to remedy the situation. Some lending institutions will raise the maximum allowable ratio. If you feel you have extenuating circumstances that should be considered, this may be an option for you. Discuss this with your lender and request the maximum ratio allowed to be raised. Another option is to lower your monthly expenses. Take a close look at every item in your monthly budget. Cut out any unnecessary items. Reduce optional memberships and recreation services to a lower package, or consider canceling all together. This will be an easier when you put the task into perspective. Do you want more cable channels to watch or do you want the home of your dreams in Des Moines? The third remedy is to increase your monthly income. If possible get a part time job; dedicate that extra income toward your goal of home ownership in Des Moines. A part-time job may be the bit of extra income that will push your ratios into the acceptable range.
Free information about buying, selling or investing in Des Moines real estate is available. For everything Des Moines real estate visit us at Real Estate with RE/MAX. Please feel free to contact us with any of your real estate or mortgage related questions and we will be more than glad to answer your questions. Call us at 1-800-708-5890 or email us at dsm@realestateconcepts.net.
Filed under Des Moines Real Estate Blog
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