Lenders assess the adequacy of income in terms of two ratios that have become standard in the trade.
The maximum ratios are not carved in stone but the burden of proof is on the borrower to make a persuasive case for raising them. The cash can be used to repay debt, but this reduces only the total expense ratio. It can also be used to pay points, which reduces the interest rate and both ratios. For this reason, the reduction in the payment is not very large. Finally, the extra cash can be used to fund a temporary buydown, which reduces the payments made by the borrower using one of the formulas described below.