Debt to Income Ratios

When buying real estate or housing property, people often look into loans or other similar funding sources to close a deal. The amount of money needed to purchase a house upfront can be daunting, and not everyone has the financial means to do so right away. That is why accredited money lenders have become more prevalent in the past few decades, as more people use them to help in acquiring properties.

What Does Hard Money Lending Mean?

The term “hard money lending” may be a new concept to people who have not purchased a home or made a loan before. In a nutshell, a hard money loan is a way for people to borrow money from a private funding source. Both individuals and companies are allowed to engage in these types of loans, and real estate investors advocate them because of the convenience they provide.

How Do I Apply for a Hard Money Loan?

While usually used in real estate concerns, hard money loans are like traditional loans. The application process is almost identical, wherein the borrower places an application at their financial institution of choice. Once this is approved, the bank or lender releases the funds to the borrower. They must repay it within a given time frame, with interest rates on top of the initial amount.

Despite these similarities, hard money loans vary from traditional loans because they require fewer documents. In addition, loan terms, use, and repayment schemes are different between the two. For instance, hard money loans have shorter repayment periods.

What Is the Debt to Income Ratio?

Another thing to consider is the debt to income ratios of the loans. Financial institutions are usually concerned about the ability of a borrower to pay back their loans. Approval rates depend on requirements such as employment history, income statements, and credit history. All of these are instrumental in determining the debt-to-income ratio or DTI.

An individual’s DTI is determined by dividing the monthly debt payments over the monthly gross income. For instance, a monthly real estate payment and a telephone bill have a total of $1,700. If your monthly gross income totals $5,000, then the DTI is 34%. Banks typically require DTI ratios that do not go below 45%.

Luckily, DFW Specialty Lending is an accredited company that funds people who need real estate loans. Those who do not get approved by banks or need an urgent loan can rest easy knowing that an institution like DFW can help them out.

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Learn about how to get a hard money loan here