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No Ratio Mortgage Loans Print E-mail

Mortgage lenders have specific lending requirements, which could make getting a mortgage loan difficult. Debt is a common factor hindering many people from buying a home. Even though a borrower may earn a substantial income, their monthly debts may exceed more than 50% of their gross income. Ideally, a borrower's debt ratio should be no more than 36% of their income. This includes monthly minimum payments on auto loans, credit cards, student loans, and installment loans. Some mortgage lenders will lend money if a borrower's debt ratio is high. Because these lenders deal with risky mortgages, the rate on these loans is much higher. For this reason, borrowers may choose other alternatives such as reducing debts or getting a no ratio home loan.

Calculating one's ideal debt ratio is easy. Simply take your monthly gross salary before taxes and divide this number by 36%. If you earn $3,000 a month, your debt payments should not exceed $1,080. Persons with higher ratios may not qualify for traditional mortgage financing. Other factors such as excellent credit or a large cash savings may work to a borrower's advantage, especially if their savings account is enough to pay off debts. On the other hand, if a borrower has average credit, no savings account, and excessive debts, a no ratio home loan may be the best alternative.

No ratio home loans are available as 15 or 30 year fixed rate loans. When applying for a no ratio home loan, information about a borrower's income is not included on the loan application. Nonetheless, mortgage lenders will outline basic requirements.

Typical requirements for getting a no ratio income loan include:

Credit score cannot fall below 640

Borrower must have at least five credit accounts (credit cards, auto loan, utilities, etc.)

Any bankruptcy must have been discharged for at least 3 years

No foreclosures within the past 3 years

Same employer for 2 years

Minimum down payment of 10%

No ratio loans can be used for:

Home purchase (single family, townhouse, condo)

Refinance

Investment property

New home construction

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