Lynn911 Dallas Realtor & Consultant, Credit Repair Advisor
Multimillion Dollar Sales Producer
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The house you're buying has to be worth enough to protect the lender in case you default on making payments for the loan. They do an appraisal to confirm that there is value in the property (and you pay for that appraisal). You can't get a loan without an appraisal showing adequate value.
Your willingness and ability to pay off the mortgage is also critical. Your credit score is an indicator of these. If you have late payments, collections, charge-offs, liens, and so on, then you are demonstrating an unwillingness to pay on time. If you're unwilling to pay off a debt, you won't get a mortgage loan.
Your ability to pay is somewhat flexible. It is based on your total income, including received untaxable government payments, child support and so on. Your total monthly payments for debts is then subtracted from your income, including the payment for the mortgage plus taxes and insurance, payments for credit cards, student loans, child support to an estranged spouse, and so on.
After all this is factored in, the ratio of debt payments to total income is calculated.
Generally, lenders want that ratio to be not more than about 40%, but loans are made with higher ratios if the credit score is above average or the borrower has other assets. If you have too large a ratio of debts to income, you won't get a loan.
So, these 3 things are most important: collateral, willingness and ability to pay.
That is why we look at credit, debt and income.
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