Would mortgage lenders rather I save up a larger down payment, or pay off more of a large student loan?
Jul 14, 2009 mortgage loan lenders
When I apply for a loan, I mean.
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July 14th, 2009 at 7:23 pm
No, no, no! Debt does not mean "size of loan amount". Debt means "minimum monthly payment". When a bank determines your Debt to Income Ratio (DTI), they use the monthly payment to determine debt load. Add all the monthly payments up, C.C.’s, student loans, car payments. Do not include utilities! These do not count. So, if you need to get your debt load down to qualify for a better loan, what they mean, is you need to payoff a loan or two so the bank will not have to count that monthly payment into your DTI to get you qualified. DTI has NOTHING to do with the rate you get.
This is how you get a good loan:
1. Good credit (620 or higher)
2. Low Loan to Value (LTV) ie..on a purchase this would be where your down payment comes in.
3. NO collections, NO BK’s in the last 2 years, NO judgements.
4. INCOME—Can you qualify for a Full Doc program or Stated Income Program.
Full Doc means the bank uses your paystubs and/or W2′s to determine your income for the DTI qualifications.
Stated Income means you tell the bank how much you make, they believe you without verifying it in order to get you qualified.
Full Doc programs are always going to get you a lower rate.
Stated Income programs always will be higher than Full Doc because the risk factor is greater.
Why would you use stated you ask?
You’re self employed and write everything off on your taxes. You made $100,000 last year but wrote off $90k so your taxable income was only $10,000. No paystub when you’re self employed and no W2. So you tell the bank, yes, I make $100,000—Stated!
If you want smaller payments, put money down on the house.
If you can’t meet the above "good credit" requirements, you can still qualify with a Sub-Prime loan. It just comes with a higher interest rate.