Frequently Asked Questions and Helpful Guides to understanding the Mortgage Industry.
What are the "usual" ratios that lenders require?
Standard FNMA ratios are 28/36 but these ratios may be "stretched" for a borrower with "Compensating Factors". There are also many other programs with various ratios, allowing a borrower to far exceed the normal ratios.
What are Compensating Factors?
These are the STRENGTHS of a borrower that might allow an underwriter to approve a loan that doesn't fit the normal standards. Some examples might be:
- Excellent credit (well above average)
- Excessive reserves
- Large down payment
- Long employment history in same job
- Demonstrated ability to make comparative monthly payment
When are ratios different than 28/36?
"Non-Conforming" lenders use one ratio (can be front or back) varying from 45% all the way to 60%.
What is PMI
PMI is Private Mortgage Insurance. It is insurance that is required when borrowers put less than 20% down. Although it is paid entirely by the borrower, it is solely for the protection of lender in case of borrower default. This is not to be confused with mortgage life or disability insurance. It offers no protection for the borrower. The cost of this insurance is determined by the percentage of down payment.
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