Mortgage Calculators and Debt Management

An important part of mortgage qualifications assessments by lenders is the evaluation of the borrower’s management of personal debt.  Borrowers with high debt ratios and high debt loads may have a much harder time getting approved for a home loan.  Assessing personal debt is a facet of the loan evaluation process performed by the lender and can be a significant factor in determining loan qualifications when using a mortgage calculator.

The mortgage calculator can help the borrower understand where they stand regarding their present debt load and monthly payments.  Underwriting guidelines of the lender measure the borrower’s debt payment levels relative to the borrower’s income level.  These debt ratios are part of most mortgage qualification calculators.  Acceptable debt ratios that are programmed in the mortgage calculator are 32/36.  This refers to the maximum percentage of monthly income that should be allocated t the mortgage payment and the maximum percentage of income that should be used to cover all monthly debts including the mortgage payment.  The 32 represent a guideline that no more than 32% of a borrower’s monthly income should be consumed by the mortgage payment.  The 36 refers to the guideline that no more than 36% of the monthly income should be used to cover all monthly payments including the mortgage payment, car loans, credit cards, and other consumer debt payments.

When a user inputs their monthly gross income and debt payments in the mortgage calculator, the calculator retrieves the qualification results based on the debt ratios.  Lenders use the same features of the mortgage calculator to look at the total amount of a debt a borrower owes and the monthly payments associated with that debt load.  The lenders want to be sure that potential borrowers can afford to make all of their current payments and the new mortgage payment they are applying for.  The mortgage calculators allow the user to alter figures about their payments and debts since the loan approval guidelines are rules that can be flexible.

If the debt ratios of the mortgage calculator are showing debt payment strain with a high debt ratio, a borrower should consider that their wants are getting hold of their checkbook and its time to reduce spending.  The borrower may have the opportunity to reduce those balances to a level that shrinks the debt ratios to acceptable lending standards.  In addition, borrowers can use the data from the mortgage payment calculator to evaluate future expenses and how these payments may impact their home budget.

Tags: debt ratio, monthly payment, mortgage calculator, mortgage payment, mortgage payment calculator

This entry was posted on Saturday, December 6th, 2008 at 6:16 pm and is filed under Mortgage Articles. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.