Monthly Debt Effects Mortgage Loans
REM #F694
By Ilyce R. Glink
Summary: A reader wonders if a personal loan will affect future real estate deals. Ilyce explains how mortgage lenders evaluate debt.
Q: I have a friend that is getting ready to go into real estate. He wants to
know if he takes out a small personal loan, what impact will it have on his
ability to take out future loans on property he wishes to buy?
A: Any time you take out a loan, whether it is personal, credit card, school,
auto, or a mortgage, it lowers the total amount you can borrow to buy real estate
in the future.
Mortgage lenders take a look at your monthly debt service – that is, how
much you spend each month to keep all of your loans afloat – and subtract
that number from the total amount you have available to pay your total debt
service.
So if you're spending $500 per month on your debt service, and your income will
allow you to spend $1,500 on your total debt (including a mortgage, real estate
taxes and insurance), you'll only be able to spend $1,000 on a conventional
loan. If you want to increase that amount, you’ll either have to look
at some riskier loan programs (like interest-only or option ARM loans) or consider
going with a high loan-to-value ratio FHA mortgage.
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
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