A Primer on the “Debt to Income” Ratio

May 18
Category | General

Through all the changes in the mortgage industry, at least one thing remains constant: the borrower agreeing to pay the creditor (lender) back. After all, why would anyone make a loan to someone who was not going to pay it back? With more and more first time home buyers entering the market, the question occasionally comes up, “How much should my payment be?”

Lenders do their best to judge what the borrower is qualified to pay – borrowers need to establish what they are comfortable paying. What a borrower is qualified to pay is generally fairly simple to answer as it is the result of a mathematical equation within guidelines that establish a limit for what is known as the debt-to-income ratio, or DTI. The DTI is a calculation that determines what percentage of gross income are the total housing payment and/or the total housing payment plus the total monthly debt payments. The total monthly housing payment is termed PITI: Principal and Interest on the mortgage, property Taxes and homeowners Insurance and homeowners association is a condo or townhome. 

The figure is usually expressed with two numbers, the top and bottom DTI ratio could look like this: 35/42 which means that a borrower’s total housing payment, PITI, is 35% of their gross income and 42% is the PITI plus credit card payments, car payments, student loans, and other debt that appears a borrower’s credit report.

Most programs do not set a limit for the top ratio, just PITI as a percentage of income, but all have a limit set for the bottom or total DTI ratio. For the most part any loans associated with the Federal Government, therefore set by the CFPB (Consumer Financial Protection Bureau), limit a borrower's DTI ratio to 43% with some exceptions. Other programs outside of the government allow for higher DTIs.

7 Tips for Finding a Good Real Estate Agent

May 10
Category | General

It is important to ensure that you have found a good real estate agent before officially hiring them to represent you. In today's market, it can be difficult to see through all of the marketing and hype about a specific agent. In order to be successful in your search, however, there are some steps you can take to find someone who is a quality agent. Use these tips to help find an agent that it right for you, whether you are a buyer or a seller.




1. Speak to some of their past clients. 

You can tell a lot about a real estate agent by speaking to people they have worked with in the past. You will want to find recent clients to show their most recent track record. Any quality agent will have references from past clients and will not be shady about providing you their contact information.


2. Make sure they are licensed. 

You can never be too sure about this. Every state has a database of licensed real estate agents and we recommend looking up any agents you are considering to be sure they are licensed.


3. Find out how long they have been an active real estate agent. 

While new agents can sometimes be just as good as a seasoned agent, it is rare. Ideally, you want an agent who has been in business for more than 3 years. Otherwise, they may be using you as a learning experience which may not be a great idea for you. 


4. Check out their current listings. 

If your agent has no listings on the market and they are a listing agent, this may be a sign that you want to stay away. However, there are times when this is common, like during a low point in the market. It is rare, though to not have a single listing so you will want to check to see what they currently have on their plate. 


5. Consider choosing someone based on awards. 

There are a lot of peer given awards in real estate and it is a great sign of a successful and good real estate agent. This shouldn't be a deal breaker but if you can find a winner, then you are in good hands.


6. Ask them about homes for sale in the area. 

This is a test of their knowledge of your area. You want someone that knows what they are talking about in the current market and is staying on top of what the market is doing. If they cannot answer a question about other homes in the area, they may not be a good fit.


7. Interview several agents. 

Do not be scared to test the water. The first agent you meet may not be the best one for you. Meet with agents at their open houses or at another showing to see how they are in action and do not settle if you are not completely happy. This is a big transaction in your life and you should interview enough agents to help figure out what you do and do not want. 

Selling a home for the First time?

May 5
Category | Selling Your Home

We hear about first time home buyers, buyers of 2nd homes, older people obtaining reverse mortgages… but what about “first time sellers”? The housing market has been heating up in many areas, especially as the weather improves, and buyers complain that there are too few properties to purchase, prices are high, rates are low and demand is rabid. So what is stopping an owner from selling their house today and moving on to the next one?

A high cost transaction can be very intimidating for a first timer, especially in a market such as this one. Borrowers are educating themselves about the process so that they can approach selling their house with confidence. Sellers should investigate what they can afford once they sell their current home, or if it is possible for them to purchase without having first sold: buying power. A qualified mortgage advisor will walk them through the steps and options. Many people discover that they can qualify to make a step up in housing without having their current home sold, which gives them a lot more flexibility because they can buy before they sell.

The loan officer can also inform the seller of the costs of obtaining a new home loan, what programs are available, a general time line, what is required for underwriting, and common mistakes that are made. These include unrealistic expectations, trying to obtain new credit cards or debt prior to buying another home, and so on.

Once a potential seller understands their buying power and the process, they should meet with a realtor for the selling side and the buying side to determine a pricing strategy for selling and a timing strategy for buying. They should know what their buying power will obtain, and study communities where they are likely to purchase. The listing agent for a house will tell the owners to clean up, spruce up, and stage the house for sale, give the first time seller a timeline, and discuss the possibility of renting after a house is sold. Inventory is tight in many areas, so if a buyer falls in love with a house they will work with the seller’s time frame.

Rates are still low, we’ve definitely seen an increase in borrows purchasing homes. There continue to be motivated sellers, and good buys to be had, in spite of us being in a traditional “slow down season” for purchases. And with home buyers comes the need for borrowers to be “pre-approved” by lenders in order, in some cases, to compete with other potential buyers.

For clients having a hard time finding a new home, the first adjustment they make is to get pre-approved – which some lenders and real estate agents believe is of critical importance. There are three main factors that determine a home buyer’s purchase price, loan amount, and type of loan: income, credit, and cash. Typically one of the three areas is the limiting factor for loan qualifying, and therefore purchase price, so borrowers being pre-qualified, and more importantly pre-approved, before writing that offer will avoid a lot of headaches, heartaches and disappointments.

To be pre-approved, a borrower first needs to contact a solid lender. Second, be prepared to provide all the information and documentation needed to properly evaluate the current financial status and be able to accurately provide mortgage amounts and options for a maximum purchase price based on capability. Here are the items usually needed: most recent paystubs, prior years federal tax returns and W2s, most recent statements for all asset accounts (checking, savings, investments, retirement accounts), residence address(es) for prior two years, employment information prior two years for all jobs (name, address, dates of employment, position, salary/commission/bonus), and birth dates.

With this information a credit report is run that includes all three credit agencies (Experian, Trans Union, Equifax) to obtain not only current credit scores but also to have what debt is currently listed. The information is put through the Automated Underwriting System for either Freddie Mac or Fannie Mae (the preferred AUS for government and most jumbo loan programs as well). The AUS will let us know if we have official credit approval or not.

At that point borrowers and lenders will discuss purchase prices, loan program, loan amount & down payment combinations, future plans & possible changes during the next 3-5 years. The lender stands by to write a letter of pre-approval to the real estate agent and the one representing the seller. But as noted, start with a discussion with your lender.




Lenders often remind their clients that there are several ways to build equity in their homes. We thought it would be a good opportunity to do the same with our readers.

One way is through rising home prices: owners gain equity simply because their homes will be worth more. Another way is through a falling mortgage balance – as you pay off your mortgage each month through amortization, you pay a portion of interest and a portion of principal (assuming it’s not an interest-only home loan). Every time you make your mortgage payment you’ll gain some home equity.

Along those lines, some borrowers opt to make larger mortgage payments with the extra portion going toward principal. One way to do that is to make biweekly mortgage payments where payments are made twice a month instead of once a month for roughly half the monthly amount. With 52 weeks in the year, this means 26 payments are made – you can even go with a biweekly mortgage payment plan, where you make 26 payments throughout the year. This not only cuts the mortgage term, but saves our borrowers quite a bit of interest – check with your lender on the numbers. And a number of borrowers are opting for a shorten mortgage term such as a 15-yr loan.

Remodeling is on the upswing, and that is a very good way to build equity: make your house more valuable by making home improvements. And keeping your home well maintained and in good shape not only adds value, and thus equity, but makes a home much more enjoyable to live in. And lastly, putting more money down when purchasing a house automatically means you have more equity in it, and borrowers often can obtain better loan terms because of it.

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