If you don’t have the cash to pay for your project, you’ll look to finance it. It’s essential to do your homework and to have a clear understanding of the types and the cost associated with financing. It is best to have conversations with your lender early on before you make any commitments.
The lender will be looking for information on all your income and all your debts so they can calculate a debt-to-income ratio. This ratio tells them if your monthly income is enough to not only pay for the new loan but if you will have enough for living expenses.
This debt-to-income ratio is key to getting your loan amount. People live differently, and this ratio may not hold true to your lifestyle, but regardless the ratio is what the banks use.
“I knew a doctor that made outstanding money and had recently divorced so he was looking to get settled in a new home. The divorce had hit his assets hard and he had high child support payments. After he paid his monthly debt including child support payment he had a cool $10,000 — shouldn’t be a problem paying a modest mortgage with that, right? Wrong… he couldn’t get a mortgage of any kind. His debt-to-income ratio was off. My point is, don’t take this lightly.” – Janet Busby
Lenders have concluded people with high debt to income have more trouble paying their mortgage. The lenders have a calculation they use and consider anything under 43 percent debt to income as favorable. If you are higher than 43 percent it does not mean you cannot get a loan, it is just not as pleasing to the lender. So go ahead and see where you are at and if above the 43 percent then plan on talking to a variety of lenders such as a large bank and a small bank. They all have different options they can offer.
Use this to assure you have all of the correct documents
Use this to calculate your debt-to-income ratio