According to a mortgage expert in Glendale AZ, if you want to apply for a home loan or refinance, it helps to know something about how lenders choose to whom they will lend money. If your financial profile does not match the criteria used by lenders, your application for a loan or refinance may be turned down. This can negatively impact your credit score, jeopardizing your chances of getting credit in the future.
When they receive an application for a mortgage or refinance, the first thing lenders do is check the applicant’s credit score. Most lenders have a policy of not offering loans to people whose credit score is lower than a specific value. Lenders do not publish what that value is, but mortgage experts have calculated that it is somewhere around 650.
Before applying for refinance or a mortgage, you should check your credit score. If your credit score is below 650, your application may be rejected by most lenders. Some lenders will lend to people below this score, but the interest rates tend to be higher.
Loan to value (LTV) ratio
This is another criterion used by lenders. They put a cap on the amount you can borrow relative to the value of the property you want to mortgage. Most lenders have a maximum LTV of 80%. To calculate your LTV, divide the amount you want to borrow by the value of your property. For example, if your home is valued at $300,000 and you want to borrow $200,000, your LTV is 200,000/300,000 x 100 = 67%.
Debt to income (DTI) ratio
This is the ratio between how much you have to pay off of all your debts each month and your net income. Debts include all loans, finance arrangements and credit card balances. Income includes all regular receipts such as salary, pensions, and social security benefits. Most lenders cap DTI at around 43%.
If you cannot match all the above criteria, your search for a loan will be more difficult. You should try to improve your credit score by paying off some of your debts. Paying off your debts also lowers your DTI. Lower your LTV by reducing the amount you want to borrow.
Alternatively, you can talk to mortgage experts, such as Pinnacle Capital Mortgage. Depending on your personal circumstances, there may be lenders who will approve your loan. Contact Pinnacle today to see if they can help you.