The Mortgage Report

What Do Mortgage Lenders See When They Look at You?

Over the years I have on occasion had clients tell me that they would have purchased a home sooner than they did, but they were holding off while they got their debts cleared up a bit, or until they got some more money saved, or until their kids started school, finished school, showed some interest in school, quit school, etc.

When I asked why they waited, they replied, "I thought it would help my chances of getting financed". While there are certainly good reasons for waiting (such as putting that foreclosure on your last home further in your past), many times people are hoping to correct a perceived weakness in their financial situation that mortgage lenders care nothing about whatsoever. Meanwhile they continue to live in a home that is too small for their families, or worse renting, while opportunities to get into a more suitable home at a good price pass them by.

Mortgage lenders really only focus on three things when considering your loan application: your debt ratio, your credit rating, and your liquid assets. How do they look at these? This week, we'll talk about the debt ratio.

Your debt ratio is your monthly debt payments divided by your gross income. Your debt payments include any installment loans (like car payments), credit card payments (usually the minimum), student loans, child support and alimony payments, and of course the loan, including taxes and insurance, that you are applying for.

Not included are utilities, auto and health insurance, phone and cable payments, season tickets (and you thought your loyalty to the Gators could hurt you), AND, get this, child expenses, such as day care and tuition isn't considered either, regardless of how many kids you have. As the father of two teenage girls, if I were the one lending the money, that would be the first question I'd ask. Yes, these are all still expenses to you, and very real ones, but the lender doesn't care about them, and in fact won't even ask what they are.

The rule of thumb is to keep your debt ratio in the 45% range, although higher ratios may be approved with other compensating factors. Your mortgage person can go over this with you quite painlessly over the phone, without any red tape, to let you know where you stand. Don't wait until little Susie gets out of day care in order to look better for the lender…they know that's just the beginning.

Carl Trawick is a Mortgage Specialist and Licensed Mortgage Broker with the firm Access e*Mortgage. He can be reached at 904-343-1145 or ctrawick@nefcom.net

 www.carltrawick.com