If you’re ready to buy a home, one of the first and most important steps to this process is securing your financing, which primarily comes in the form of a mortgage loan. Doing so requires attention to several details and numbers, many of which speak to your overall finances, your history with debt and related areas that help mortgage lenders understand more about you.
At Altius Mortgage and our partners with Mortgage Ogden, we’re happy to walk any client — including first-time homebuyers who may be unfamiliar — through the entire process of applying for and obtaining a mortgage. What are a few of the most important numbers or metrics you should be thinking about as you apply for your mortgage, and why are they important? Here’s a basic primer.
Perhaps the single most important number related to your mortgage is your credit score. This number, which measures your borrowing and repayment history over time, gives lenders a broad indication of how likely you are to repay any money you borrow.
A higher credit score indicates to a lender that you’re a lower-risk borrower, while a lower score may mean you’re viewed as more of a risk. That risk assessment will play a role in the interest rate you’re offered on your mortgage, as well as the maximum loan amount and other factors.
Your debt-to-income ratio is another important number related to your mortgage. This figure expresses the percentage of your monthly income that goes toward paying debts, and it’s used by lenders to help assess your ability to afford a new mortgage payment.
In general, the lower your debt-to-income ratio, the better — that is, the less debt you’re currently carrying relative to your income, the easier it may be to take on a new monthly mortgage payment. Lenders typically like to see a debt-to-income ratio of 36% or less, though some may accept ratios up to 45%.
Loan to Value Ratio
Another vital number to be considering here is loan to value ratio, which refers to the percentage of the home’s purchase price that your mortgage loan will cover.
For example, if you’re buying a $200,000 home and taking out a $180,000 mortgage loan, your loan-to-value ratio is 90%. In general, the higher your down payment, the lower your loan-to-value ratio will be. A lower loan-to-value ratio may result in a lower interest rate on your mortgage.
In certain cases, such as if you have significant additional funds on-hand to cover other home costs, some lenders may accept a higher loan-to-value ratio.
For more on the most important numbers or figures that impact your ability to be approved for a mortgage, or to learn about our mortgage rates or any of our home loan services, speak to the team at Altius Mortgage today.