When you buy a home, you may hear the term Debt-to-Income ratio. In addition to your credit score, banks are going to look at your monthly obligations or loan payments shown on your credit report and add these to your monthly mortgage payment.
Once they add these up, they will compare the total amount to your monthly income to determine if you can comfortably make your mortgage payment going forward.
This is your Debt-to-Income ratio. The lower your ratio, the higher chance you have of getting approved. Now that you know why banks care about your down payment amount, your credit score, your monthly loan payments, and your monthly income, you can understand why they require so much information and so many financial documents from you.
They will review your bank statements to make sure you can afford the down payment you are planning on making. They will ask for your social security number, so they can review your, check how you’ve paid your bills in the past, and also see what loan payments you’re making every month.
They’ll look at pay stubs, tax documents, and your bank statements to validate how much money you make. A loan is unique, because it’s probably the only thing you buy that the seller is going to want back!
When you buy a shirt, the store doesn’t want it back, so it doesn’t care about your situation and all that documentation.
Read more on monthly mortgage mortgage payments here.
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Read more Key Mortgage Terms.