Capacity (Video 4 of 4)
This set of 4 videos will give you a super quick overview of the 4 C’s of Real Estate Financing: Credit, Collateral, Capital, and Capacity. Take a look! Please contact me if you have any real estate questions.
Today we’re going to look at the fourth “C” of Real Estate Financing: Capacity. Capacity refers to your capacity, or ability, to repay the loan the bank is making. The bank wants to determine that you make adequate income to actually make your mortgage payment each month. The key ingredient in determining your capacity is the Debt-to-Income (DTI) ratio, a term that’s used a lot in the lending business. There are different types of DTI ratios (front-end and back-end), and we’re not going to go into great detail on all of that today. But this post should give you a good idea of how a bank analyzes your ‘numbers’ to see if you fit into their loan criteria.
To see the other 3 videos in the Real Estate Financing Series (2-minute tidbits), here are the links. Please, spend 10 minutes, learn a little and understand the facets of loan qualification.
Real Estate Financing Capacity