Debt Ratio - More Important Than You Think (Part 2)
A perfect example of this phenomenon is a real-life situation of a divorcee. The borrower was a teacher who was recently divorced. She lived in a $280,000 home, and the mortgage was covered by her ex-husband. After the divorce, the teacher remained in the house, but she couldn’t afford the house payments. Within a few months, she found herself facing a foreclosure. She contacted a lender to try to refinance the home in order to keep the house. Unfortunately, her debt ratio was so “out-of-whack” that she wasn’t able to get a loan, even though her credit was perfect (the delinquent mortgage was on the ex-husband’s credit).
Your credit history has much to do with your debt ratio as well. If you have absolutely perfect credit, you might qualify for a no-income-verification loan. For this type of loan, the lender will use whatever income figure you supply. If you make $12,000 per month selling figurines on ebay, you can enter $12,000 for your income on your application, and the lender will not ask to verify it. The reasoning behind this is that if your credit is perfect and your scores are high, there is an inherent assumption that you know how to manage your money. Therefore, you know what you can afford. Usually, you will need a credit score of at least 700 to qualify.
You might ask, “What about the divorced teacher? She had perfect credit – couldn’t she have qualified for a no-income loan?” The answer is it depends on the lender. In most cases, no-income-verification loans apply to self-employed borrowers only. The teacher was not self-employed. Further, lenders apply a reasonability test. It would be unreasonable to expect a teacher to make a salary high enough to support a $280,000 house.
You don’t have to have perfect credit for a no-income-verification loan. Most subprime lenders will also offer a no-income-verification product. You can have a score as low as 580 and qualify for a no income loan. However, the interest rates and fees can be exorbitant for the subprime version of this product.
Before applying to a lender, analyze your own situation. Obtain a copy of your credit report from the three major credit bureaus so you can see what accounts the lender sees. If the account is not listed on the credit report, chances are it won’t count against your debt ratio. In any case, by analyzing your credit reports, you can calculate your own debt ratio, within a reasonable degree of accuracy. Add up all of your verifiable income for every borrower listed on your application. Then, add up all of the accounts showing up on all credit reports. Divide the debts by the income.
Your best bet, regardless of your debt ratio, is to make sure your credit scores are as high as possible. Whether you plan on taking advantage of a no-income-verification loan or not, when you have high credit scores, you have more options available to you. You will garner more leniency when it comes to debt ratios. Lenders will either grant you debt-ratio exceptions, or will lower your rate to fit a debt-ratio. Either way, you will get the best rates available when your credit scores are high. Lower rates give you a better chance of fitting into most debt-ratio guidelines.
Your credit history has much to do with your debt ratio as well. If you have absolutely perfect credit, you might qualify for a no-income-verification loan. For this type of loan, the lender will use whatever income figure you supply. If you make $12,000 per month selling figurines on ebay, you can enter $12,000 for your income on your application, and the lender will not ask to verify it. The reasoning behind this is that if your credit is perfect and your scores are high, there is an inherent assumption that you know how to manage your money. Therefore, you know what you can afford. Usually, you will need a credit score of at least 700 to qualify.
You might ask, “What about the divorced teacher? She had perfect credit – couldn’t she have qualified for a no-income loan?” The answer is it depends on the lender. In most cases, no-income-verification loans apply to self-employed borrowers only. The teacher was not self-employed. Further, lenders apply a reasonability test. It would be unreasonable to expect a teacher to make a salary high enough to support a $280,000 house.
You don’t have to have perfect credit for a no-income-verification loan. Most subprime lenders will also offer a no-income-verification product. You can have a score as low as 580 and qualify for a no income loan. However, the interest rates and fees can be exorbitant for the subprime version of this product.
Before applying to a lender, analyze your own situation. Obtain a copy of your credit report from the three major credit bureaus so you can see what accounts the lender sees. If the account is not listed on the credit report, chances are it won’t count against your debt ratio. In any case, by analyzing your credit reports, you can calculate your own debt ratio, within a reasonable degree of accuracy. Add up all of your verifiable income for every borrower listed on your application. Then, add up all of the accounts showing up on all credit reports. Divide the debts by the income.
Your best bet, regardless of your debt ratio, is to make sure your credit scores are as high as possible. Whether you plan on taking advantage of a no-income-verification loan or not, when you have high credit scores, you have more options available to you. You will garner more leniency when it comes to debt ratios. Lenders will either grant you debt-ratio exceptions, or will lower your rate to fit a debt-ratio. Either way, you will get the best rates available when your credit scores are high. Lower rates give you a better chance of fitting into most debt-ratio guidelines.
A perfect example of this phenomenon is a real-life situation of a divorcee. The borrower was a teacher who was recently divorced. She lived in a $280,000 home, and the mortgage was covered by her ex-husband. After the divorce, the teacher remained in the house, but she couldn’t afford the house payments. Within a few months, she found herself facing a foreclosure. She contacted a lender to try to refinance the home in order to keep the house. Unfortunately, her debt ratio was so “out-of-whack” that she wasn’t able to get a loan, even though her credit was perfect (the delinquent mortgage was on the ex-husband’s credit).
Your credit history has much to do with your debt ratio as well. If you have absolutely perfect credit, you might qualify for a no-income-verification loan. For this type of loan, the lender will use whatever income figure you supply. If you make $12,000 per month selling figurines on ebay, you can enter $12,000 for your income on your application, and the lender will not ask to verify it. The reasoning behind this is that if your credit is perfect and your scores are high, there is an inherent assumption that you know how to manage your money. Therefore, you know what you can afford. Usually, you will need a credit score of at least 700 to qualify.
You might ask, “What about the divorced teacher? She had perfect credit – couldn’t she have qualified for a no-income loan?” The answer is it depends on the lender. In most cases, no-income-verification loans apply to self-employed borrowers only. The teacher was not self-employed. Further, lenders apply a reasonability test. It would be unreasonable to expect a teacher to make a salary high enough to support a $280,000 house.
You don’t have to have perfect credit for a no-income-verification loan. Most subprime lenders will also offer a no-income-verification product. You can have a score as low as 580 and qualify for a no income loan. However, the interest rates and fees can be exorbitant for the subprime version of this product.
Before applying to a lender, analyze your own situation. Obtain a copy of your credit report from the three major credit bureaus so you can see what accounts the lender sees. If the account is not listed on the credit report, chances are it won’t count against your debt ratio. In any case, by analyzing your credit reports, you can calculate your own debt ratio, within a reasonable degree of accuracy. Add up all of your verifiable income for every borrower listed on your application. Then, add up all of the accounts showing up on all credit reports. Divide the debts by the income.
Your best bet, regardless of your debt ratio, is to make sure your credit scores are as high as possible. Whether you plan on taking advantage of a no-income-verification loan or not, when you have high credit scores, you have more options available to you. You will garner more leniency when it comes to debt ratios. Lenders will either grant you debt-ratio exceptions, or will lower your rate to fit a debt-ratio. Either way, you will get the best rates available when your credit scores are high. Lower rates give you a better chance of fitting into most debt-ratio guidelines.
Your credit history has much to do with your debt ratio as well. If you have absolutely perfect credit, you might qualify for a no-income-verification loan. For this type of loan, the lender will use whatever income figure you supply. If you make $12,000 per month selling figurines on ebay, you can enter $12,000 for your income on your application, and the lender will not ask to verify it. The reasoning behind this is that if your credit is perfect and your scores are high, there is an inherent assumption that you know how to manage your money. Therefore, you know what you can afford. Usually, you will need a credit score of at least 700 to qualify.
You might ask, “What about the divorced teacher? She had perfect credit – couldn’t she have qualified for a no-income loan?” The answer is it depends on the lender. In most cases, no-income-verification loans apply to self-employed borrowers only. The teacher was not self-employed. Further, lenders apply a reasonability test. It would be unreasonable to expect a teacher to make a salary high enough to support a $280,000 house.
You don’t have to have perfect credit for a no-income-verification loan. Most subprime lenders will also offer a no-income-verification product. You can have a score as low as 580 and qualify for a no income loan. However, the interest rates and fees can be exorbitant for the subprime version of this product.
Before applying to a lender, analyze your own situation. Obtain a copy of your credit report from the three major credit bureaus so you can see what accounts the lender sees. If the account is not listed on the credit report, chances are it won’t count against your debt ratio. In any case, by analyzing your credit reports, you can calculate your own debt ratio, within a reasonable degree of accuracy. Add up all of your verifiable income for every borrower listed on your application. Then, add up all of the accounts showing up on all credit reports. Divide the debts by the income.
Your best bet, regardless of your debt ratio, is to make sure your credit scores are as high as possible. Whether you plan on taking advantage of a no-income-verification loan or not, when you have high credit scores, you have more options available to you. You will garner more leniency when it comes to debt ratios. Lenders will either grant you debt-ratio exceptions, or will lower your rate to fit a debt-ratio. Either way, you will get the best rates available when your credit scores are high. Lower rates give you a better chance of fitting into most debt-ratio guidelines.
posted by zzzzzzzzzzz at
2:37 AM
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