Mortgage-Refinance Loan Measurment 101 — Evaluate Your Own Ability to Pay
We live in a society where people are losing their homes at an alarmingly high rate. There are several reasons for this, but one could certainly be avoided — buying a house that creates a loan that is too large for you to handle. This article will examine how to decide your loan size — whether you are purchasing or refinancing. We’ll look at this issue from the point of view of lenders and from the standpoint of what is actually best for you.
In a conventional, conforming loan — one in which you have good credit and good job history — a lender will look at what he calls “debt-to-income ratio.” Many mortgage brokers refer to it as DR (debt ratio). They also break it into two categories — front end ratio and back end ratio.
A front end debt ratio calculates your gross monthly income against your new house payment.
