Not so, most mortgage lender will recheck a borrower’s credit prior to closing on a mortgage. If anything new arises in the credit re-check, lenders may want to delay the closing to verify the borrower can still afford the mortgage. In some cases, the lenders may even cancel the mortgage prior to closing, which could mean a higher interest rate on a new loan. In real estate the purchase is not a sure thing until final contracts are signed and sales price is funded.
A new charge on your credit card for new furniture, a refrigerator, etc can change your ratio immediately.
So what are the banks looking for? They want to make sure that your income can cover all your monthly expenses, including PITI (principal mortgage balance, Insurance, Taxes and Insurance). They calculate your credit worthiness by using two percentages called front-end ratio and back-end ratio.
The front-end ratio indicates the percentage of your income that will go towards your PITI (principal mortgage balance, Insurance, Taxes and Insurance). The back-end ratio indicates the percentage of your income that will go towards all your reoccurring debts, including PITI.
So what is a good ratio? The smaller the percentage the better. Traditional lender would like to see a front-end ratio of 28% or less and a back-end ratio of 36% or less. Fannie Mae allows for a back-end ratio of 45%.
Knowing your ratios ahead of time can help you prepare for home ownership.
1) Front-end ratio
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| Total amount of new house payment: | $750 | |
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| Borrower's gross monthly income (including spouse, if married): | $2,850 | |
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| Divide total house payment by gross monthly income: | $750/$2,850 | |
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| Debt to income ratio: | 26.32% | |
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2) Back-end ration
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| Total amount of new house payment: | $750 | |
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| Total amount of monthly recurring debt: | $400 | |
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| Total amount of monthly debt: | $1,150 | |
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| Borrower's gross monthly income (including spouse, if married): | $2,850 | |
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| Divide total monthly debt by gross monthly income: | $1,150/$2,850 | |
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| Debt to income ratio: | 40.35% | |
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