Lenders look into a variety of different ratios when determining if you qualify for a home loan. Two of the most common ratios are Loan-to-Value Ratio and Debt-to-Income Ratio.
What is Loan-to-Value?
LTV expresses the amount of money that you’ll borrow as a percentage of the home’s value. With that being said, lenders typically prefer a lower LTV, because it represents less risk to the bank.
For example, Tina needs to borrow $40,000 to purchase a $100,000 property.
$40,000 (Mortgage Amount) / $100,000 (Appraised Value of the Property) = 40% (LTV Ratio)
What is Debt-to-Income Ratio?
DTI expresses your monthly obligatory expenses in relation to your income. Examples of obligatory expenses include car payments, student loans, and credit card payments.
For example, if Brian totals his monthly recurring debt, his monthly debt payments total to $3,000. So, if his monthly income is $7,000, then his DTI would be 38%.
$3,000 (Total Recurring Monthly Debt) / $8,000 (Gross Monthly Income) = 38% (DTI Ratio)
LTV and DTI requirements change based on the loan program and borrower eligibility. There are many additional factors that determine which home loans you can qualify for. If you’re interested in purchasing, refinancing or would like more information, contact one of our friendly Flat Branch loan officers today!