Mortgages

Lenders Generally Base Mortgage Decisions on These Four Factors

1. Income Stability 

Any income that can be verified and has a 2-year history such as investment interest, commissions, royalties, social security, disability, and alimony payments, in addition to your salary, counts to your advantage. Debt-To-Income Ratio 

2. Debt-To-Income Ratio

Lenders prefer that the proportion of your combined debt and housing expense be no more than 36% (28% for housing and 8% for debt) of your monthly pre-tax income. Housing expenses usually consist of principal, interest, taxes, and insurance (PITI), but can also include maintenance. 

Other debt includes credit card balances, installment loans, and anything else you might owe. Our monthly payment calculator can help you determine your monthly housing expense. If your individual situation is different from the standard ratios outlined above, don't despair! Wells Fargo Home Mortgage has programs that accommodate many financial situations. Please contact a Wells Fargo Home Mortgage consultant today for a personalized assessment of your needs. 

3. Loan to Value (LTV) Ratio

Loan to value (LTV) is the ratio of your loan amount to the value of your property. This ratio tells a lender how much equity you will have in your home. The higher your equity and the lower your LTV, the larger your stake in the investment, and the less risk there is for the lender. An LTV of 80%, for example, means that you are putting 20% down and borrowing 80% of the property's value. 

Borrowers with less than 20% equity are generally required to buy Private Mortgage Insurance (PMI) which protects the lender in case of loan default. Loan-to-value guidelines are determined by the borrower's circumstances and the type of loan. At Wells Fargo Home Mortgage, a borrower can put down as little as 3% of the property value and still qualify for a new home. 

4. Property Appraisal 

This is a professional assessment of your property by a licensed appraiser to make sure that its market value is sufficient for the loan amount. A lender needs to know that the borrower's collateral (property and down payment) will cover the loan amount in case of default.