Creative Solutions To High DTI

Finding Creative Solutions To High DTI

Home Borrowers who have high debt to income ratios can find creative solutions to high DTI. Debt to income ratio is one of the major reasons why mortgage loan borrowers cannot qualify for a home loan. Debt to income ratio is calculated by adding all of the mortgage loan borrower’s minimum monthly payments including the proposed P.I.T.I  ( principal, interest, taxes, and insurance ) and dividing it by the borrower’s monthly gross income. FHA Loans has the most generous debt to income ratio caps out of all mortgage loan programs. FHA mortgage loan borrowers with 620 FICO credit score or higher can have a back end debt to income ratio as high as 56.9% DTI. However, if your credit scores are under 620 FICO, FHA reduces the debt to income ratios to 43% DTI Caps.

Fannie Mae mandates a maximum debt to income ratio of 45% DTI to qualify for a conventional loan. USDA Loans cap the debt to income ratios to 41% DTI and VA Loans debt to income ratios is per automated findings per Automated Underwriting System. Most Jumbo Mortgage Lenders cap the debt to income ratio to 40% DTI for Jumbo Mortgages. Most portfolio mortgage lenders cap their debt to income ratios at 43% DTI on their portfolio loan programs.

Solutions To High DTI: Paying Down Credit Cards

Paying down credit card balances is one of the most common solutions to high DTI. If a mortgage loan borrower has very high debt to income ratios and has credit card balances, it is highly recommended that they pay down all of their credit cards prior to having the mortgage loan officer registering and submitting the loan to processing and underwriting. If a mortgage loan borrower needs to pay down their credit cards during the mortgage approval process, they not only need to pay down the credit card balances but they also need to close out their credit card accounts. FHA and Fannie Mae Mortgage Lending Guidelines state that if a mortgage loan borrower needs to pay down their credit card balances during the mortgage approval process, the credit card also needs to be closed and the paid off credit cards as well as the closed credit card accounts needs to be reflected on the consumer’s credit report. However, if the mortgage loan borrower has their credit card balances paid off prior to the mortgage loan officer submitting their mortgage loan application to processing and underwriting, then they do not have to close out their credit card accounts. The paid down or paid off credit card balances needs to reflect on the credit report. This can be done through a rapid rescore. Freddie Mac does allow for mortgage loan borrowers to pay down and/or pay off their credit card balances during the mortgage process.

Solutions To High DTI: Shopping For Homeowners Insurance

Mortgage borrowers with high debt to income ratios, every dollar in monthly expenses can be a potential deal breaker. Some solutions to high DTI is shopping for the homeowners insurance where you can get the lowest possible premium for the best coverage. Your homeowners insurance agent should be creative and see if he or she can give you a discounted rate if you do a package deal by including your cars and other insurance needs with your new homeowners insurance. Homeowners insurance can vary from insurance company to insurance company and shopping for homeowners insurance should be done early in the mortgage process and not at the last minute. Your mortgage loan originator, real estate attorney, real estate broker should all have contacts with homeowners insurance agents. Please get more than one homeowners insurance quote and compare apples to apples to make sure that you get the best deal.

Other Solutions To High DTI

Buying down the rate with points are other solutions to high DTI. Buying down mortgage rates can be expensive. On the average, it would cost a mortgage borrower 1 Point, or 1% of the mortgage loan amount, to buy down 0.25% mortgage interest rate. So buying down 0.50% of mortgage interest rates, a mortgage loan borrower will have to pay 2 points which is 2% of the mortgage loan balance. On a $200,000 mortgage loan, one point equals to 1% of the $200,000 mortgage loan balance which is $2,000. 2 Points on a $200,000 mortgage loan amount is equivalent to $4,000.

Home Buyers can use sellers concessions for points to buy down the mortgage interest rates. FHA Loans allows up to 6% in sellers concessions credits by home sellers to offer home buyers towards closing costs. Buying points is considered part of closing costs . VA Loans allow up to 4% in sellers concessions and conventional loans allow up to 3% of sellers concessions for primary and second home financing and 2% sellers concessions for investment home financing.

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.

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