A no-ratio mortgage or debt-to-income mortgage is a unique type of an arrangement made between a borrower and an issuer. There is high risk involved for both the parties. It is apt for those people who do not want to reveal their documents or income to the public. Here are 7 things to check if you are considering getting a no-ratio mortgage.
Self-employment
If you are going to opt for a no-ratio mortgage, you are required to be self-employed. When you are self-employed, the chances of you earning a fixed amount are less than that of a salaried person. Since a no-ratio mortgage is generally granted to someone who is self-employed, ensure that you are one.
Credit score
The lenders do not check your credit score or your background before sanctioning a no-ratio mortgage to you. Your credit score may be 0, for all they care. So, if you are worried that you may not be able to fulfil the criteria, worry not. Nobody will check your credit score before granting you the loan.
Down payment or deposit
Since your credit score is ignored, lenders consider the capital you have in hand. To be eligible for a no-ratio mortgage, you are required to have a down payment of at least 35 to 40 percent of the total value of the property to pay initially. If you are a saver and have managed to save enough capital that would amount to 40 percent of the total value of the house, you will be qualified for the mortgage.
Reserved funds
Apart from a heavy deposit of 35 to 40 percent, you are expected to have enough funds to get you through the first 12 months of the mortgage plan. If you can show a documented proof of your savings and guarantee payments for the next 12 months, you will be immediately accepted for a no-ratio mortgage.
You Might Also Like: 10 Tips For Getting A Mortgage
Interest rates
When it comes to a no-ratio mortgage, the interest rates are slightly higher than the traditional mortgages. However, they neither keep increasing every few years nor are they dependent on the market. There is a fixed, predetermined rate of interest, which is usually 0.5% higher than the prevailing interest rate in the market.
Number of equity
You are expected to have high number of equity in your home when it comes to a no-ratio mortgage. If your equity is higher, it becomes easier for you as a borrower, to get the loan from the lender. This ensures the lender that you are capable of paying back the mortgage that you have decided to take.
High risk involved
Since there is no concrete authentication of the borrower and no guarantee if they will be able to pay back, it becomes difficult for the lender to determine who can pay and who cannot. The borrower is also at risk considering that they are self-employed and may not be able to repay the loan later on.
Keep yourself updated with the latest on Mortgage. Like us on Facebook and follow us on Twitter for more on Investments.
