Increase the Odds

Improve Your Chances Of Getting The Right Loan

When you're thinking about buying a home, take a good look at your financial situation from the perspective of a loan officer. For a lender, not all debts are equal. 28/36 Ratio

In the past, lenders often said borrowers could not spend more than 28% of their gross monthly income on housing expenses, and their total debt payments could not exceed 36% of their income for a typical 10% down payment loan.

More-Flexible Guidelines

Today, many lenders are more flexible and allow a greater percentage of monthly income to go toward mortgage payments. But they are more stringent on credit-card balances. Lenders often count 5% of the balance as a borrower's monthly payment, instead of counting the credit card's minimum payment.

Pay-Off Strategies

If you are planning to pay off some debts before you apply for a loan, consider retiring the ones with the largest monthly payment. Many lenders prefer to have a car payment paid off, for example, since borrowers are less likely to go out and buy a new car right away. If credit cards are paid off, however, the borrowers might start charging again.

Near Pay-Off Versus Minimum Payment

If you have a few months left on a loan, lenders sometimes overlook it when calculating your monthly debt ratio. On the other hand, lenders look unfavorably on borrowers who let loans linger for a long time with minimal effort to repay the principal. The most important factor to lenders, however, is that you pay your bills on time.