Q: “How can I determine what loan for Mexico that I can afford?” Christine H., Denver, CO.
A: Determining how much of a loan you can handle is relatively easy. You can go online to our website and fill out the pre-qualification form; we’ll work the numbers and provide you with an estimate of costs and what your current situation will allow. Or you can call direct and we can do the math for you – real time. Most brokers offer similar services.
But if you want to tinker with some numbers on your own, loan affordability is based on a simple equation known in our industry as DTI, or Debt to Income Ratio. This is merely the percentage of monthly debt that you carry in relation to your monthly income. In other words, add up all of your monthly credit card payments, car payments, rent or mortgage payments, alimony, child support or whatever else you have that will show up on a credit report and divide that into your gross income per month. Only use the fixed expenses, don’t bother with grocery, electric bills and such. Following the above steps will give you what’s known as a Front End DTI or – not factoring in the new, proposed purchase.
For Example:
1st Mortgage: $1,500 (Per Month)
Credit Cards: 800
Car Payment: 600
Monthly Debt: $2,900
Income: $9,000
$2,900 Divided By $9,000 = 32.222 The Front End DTI is roughly 32%
Banks are more concerned, however, with Back End DTI’s. In order to calculate this ratio, simply factor in the monthly payment of the Proposed Purchase.
For Example:
1st Mortgage: $1,500 (Per Month)
Credit Cards: 800
Car Payment: 600
Proposed
2nd Mortgage 700
Adjusted Monthly Debt: $3,600
Income: $9,000
$3,600 Divided By $9,000 = 40.0 The Back End DTI is 40%
The above scenario would easily meet the DTI requirements for all of our Loan Programs.
It helps to have a mortgage broker go through this with you using your credit reports as you may not have a true indication of these numbers. Also, a mortgage broker can sometimes identify sources of income that you may not have remembered, or find payments on your credit report that can be subtracted.
While there are lenders for Mexican properties that will allow your debt to income percentage to be as high as 50%, most of them prefer that this figure be at or below 40% to 45% – with the addition of the new mortgage payment.
Cross border lenders are very conservative, which bodes well for your real estate investment. Irresponsible and aggressive lending practices just don’t exist in legitimate mortgage avenues in Mexico. This means an extremely low default ratio across the board which will only help to bolster current market values and indeed allow them to continue climbing. This is in direct opposition to what is currently happening in the U.S. market.
Prequalification is the first important step in embarking on the loan process. Know what you can afford and always borrow within your means.
