Home Purchasing

The Three Most Important Numbers for Your Mortgage Application

Want to buy a house? If you’re planning to purchase a home of your own, you probably have questions about how to qualify for a mortgage. To get the best rate possible—and to determine whether you should buy a home now or later—you should get familiar with the 3 most important numbers a lender uses to determine your mortgage pre approval. We want you to enter the mortgage process fully informed, so we’ve broken it down for you. Here’s what you need to know!

1. Credit Score

When you have a good credit score, your lender can trust that you’re more likely to pay back your loan. Thus, they will give you a better rate and you’ll end up paying less over time! But when you have a poor credit score, you’ll seem less trustworthy to lenders and you will have to pay a higher interest rate and a higher mortgage insurance rate (if applicable). And if your score is under 620, you may not be able to get a loan at all. You can still purchase a home if your credit score is less than ideal. However, if you can raise it to 740 or higher, you’ll get the best deal.

2. Debt to Income Ratio (DTI)

Do you know your debt to income ratio, or DTI? This number is useful because it helps determine how much you can afford to pay each month on your mortgage, given your projected mortgage payment, current gross monthly income and any debt you already have. It takes car payments, student loans, credit card payments, etc. into account.  A lower DTI will help you qualify for a mortgage and a higher one may make it more difficult.

3. Loan to Value Ratio (LTV)

The third number is the loan to value ratio or LTV. This helps to measure how much equity you have in your home. A high LTV means you’re borrowing a lot of money, a low LTV means you’re borrowing less. So, your loan to value ratio depends on the specific home you’re buying—specifically, its property value and how much money you’re putting down. Lenders use LTV to determine mortgage insurance, and they also tend to have a maximum LTV. Therefore, lowering it can help you qualify for better rates.

Ready to get pre-approved for a mortgage? We’re here to help!