Think-Realty-Magazine-July-2020

STRATEGY

PORTFOLIOS

HowMuch House Can You Afford? UNDERSTANDING RATIOS, CRITERIA, AND CREDIT FOR YOUR NEXT REAL ESTATE LOAN

By Aaron Chapman

A licensed loan originator must understand basic loan criteria. When communicating with home buyers, it is imperative to know whether the information provided will allow for the successful closing of a real estate purchase. Such things that must be analyzed are credit history to verify one’s pattern of re- payment in an effort to illustrate the likelihood of continuance.

In addition to being an indicator on how payments were made, a credit report can show the dollar amount that is required to be paid and how often. Added to primary housing expense (principle, inter- est, property taxes, homeowners insurance, HOA [PITIH] for the homeowner, or Rent for the renter) this cumulative figure divided by the verified gross monthly income

provides the debt-to-income ratio. The ratios commonly accepted are 28 percent housing (front-end ratio) and 36 percent max debt-to- income ratio, also known as back-end ratio. The front-end ratio is the maximum percentage of gross monthly income that can be used toward primary housing (PITIH or Rent). When adding all other debt such as credit cards, automotive, recreational

68 | think realty magazine :: july 2020

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