Qualifying For Home Loan With High Debt To Income Ratios

Debt to income ratios are extremely important when it comes to mortgage qualification requirements. Every loan program has its maximum debt to income ratio caps. The most generous mortgage loan program when it comes to debt to income ratios are FHA Loans . FHA Loans under FHA lending guidelines has a maximum back end debt to income ratio cap of 56.9%. FHA also has a maximum front end debt to income ratio 46.9%. Conventional loans have a maximum debt to income ratio cap of 45%. USDA Loans has a maximum debt to income ratio caps of 41%. VA Loans debt to income ratios are a little different and depends on the individual VA Loan applicant. I have seen an approve/eligible on VA Loans with debt to income ratios up to 60% DTI and have seen VA Loan applicant’s get a referred/eligible with a 45% debt to income ratio. It depends on how the overall credit and income profile of the VA Loan applicant and how the Automated Underwriting System .  With Jumbo Mortgages, most jumbo mortgage lenders require no greater than 40% debt to income ratios.

What Is Debt To Income Ratios?

Debt to income ratios is adding the amount of the mortgage loan borrower’s total monthly minimum payments and dividing it by the borrower’s gross monthly income. There are two types of debt to income ratios. The front end debt to income ratio and the back end debt to income ratio. The front end debt to income ratio is the housing payment divided by the mortgage loan borrower’s gross monthly income. The housing payment consists of the principal, interest, taxes, and insurance. Also, if the property has homeowners association dues, the HOA is included as part of the housing payment and is calculated in the calculation of the front end debt to income ratios. The back end debt to income ratios consists of the housing payment plus all other monthly minimum payments such as minimum credit card payments, auto loans, student loans, installment loans, and other monthly minimum payments that is being reported to the three credit reporting agencies, credit bureaus. Monthly credit obligations that do not report to the credit bureaus such as insurance payments, cell phone payments, telephone payments, cable payments, and utilities are not used to calculate debt to income ratios by mortgage lenders.

Risks With Home Loan With High Debt To Income Ratios

If you are seeking a home loan with high debt to income ratios, you are at risk for going over the debt to income ratio caps and any larger monthly payments may jeopardize on a last minute mortgage loan denial. For example, if you had a homeowners insurance quote of $100 per month initially and your back end debt to income ratio is at 56.9% on a FHA Loan, a revised homeowners insurance quote of $120.00 per month from the insurance company will throw your debt to income ratio caps and will disqualify you for the mortgage loan closing.  Home buyers with extremely high debt to income ratios need to make sure that they run a risk of not closing their mortgage loan if they exceed the maximum debt to income ratio caps allowed.

Solutions With Home Loan With High Debt To Income Ratios

If you have high debt to income ratios, my recommendation is to make sure you pay off all of your credit card balances prior to you officially applying for a home loan. If you are forced to pay off your credit card balances during the mortgage application process due to higher debt to income ratios, the mortgage lender will have you pay off your credit card balances PLUS CLOSE OUT YOUR CREDIT CARD ACCOUNT. If you pay off your credit card balances prior to applying for a mortgage loan, you will not need to close out your credit card accounts in the event you need to pay off your credit card balance due to exceeding the debt to income ratio caps.

Buying Down Rates As Solution To Home Loan With High Debt To Income Ratios

Mortgage lenders do accept sellers to give home buyers sellers concession toward a home buyer’s closing costs. Sellers concessions can be used to buy down mortgage rates by home buyers. Home buyers with high debt to income ratios or nearing the maximum cap on their debt to income ratios may want to get extra sellers concessions and use the sellers concession to buy down mortgage rates.

Another option for mortgage loan borrowers who exceed the debt to income ratio caps during the mortgage application and mortgage approval process is to explore going with an adjustable rate mortgages instead of a 30 year fixed rate mortgage. Adjustable rate mortgages offer much lower mortgage rates than fixed rate mortgages.

If you are a home buyer looking for a home loan or homeowner looking for a refinance mortgage with high debt to income ratios, please contact us at 262-716-8151 or email us at gcho@gustancho.com. We will explore the best option and mortgage loan program to suit your needs. We are available 7 days a week, including evenings and holidays.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

Comments are closed.