If you are planning to take out a loan, there are several qualifications you will have to meet in order to do so. Naturally, you’ll first need to make sure your credit score is high enough to qualify for an FHA loan or a conventional loan. From there, you can shift your attention to determining if your debt-to-income ratio is adequate. We are here to help you ensure your debt-to-income ratio is satisfactory to get you one step closer to making your purchase.
What is Debt-to-Income Ratio?
Debt-to-income ratio may be a new term for you if this is your first time entering the homebuying process. In short, DTI ratio is all of your monthly debt obligations divided by your monthly income before taxes and other deductions. The ratio serves as a means for lenders to quantify a borrower’s ability to pay back any outstanding debts. From a bank’s point of view, a higher DTI ratio can increase the chances of a buyer struggling to make monthly payments down the road. If you are unsatisfied with your current DTI ratio, you can emphasize paying off debts or bringing in more income.
DTI Ratio and Your Loan
A DTI ratio of 20% or lower is considered good. If you are in this vicinity, that is great news! Things become a little trickier as your DTI ratio increases. According to the Federal Reserve, a DTI of 40% or more signifies financial stress. Even at this higher ratio, one can still qualify for a mortgage. The key number to remember is 43%, because that is the highest DTI ratio one can have while remaining eligible for a qualified mortgage. A DTI ratio greater than 43% is considered a risk to most lenders because it of the potential inability of the buyer to keep up with payments. There may be certain circumstances in which a buyer can still be eligible for a mortgage despite their high DTI ratio. In these instances, the offers the buyers receive will most likely not be qualified mortgages.
Golden Lenders Can Work With You and Your DTI Ratio
Golden Lenders has experience working with buyers of all debt-to-income ratio levels. We specialize in helping people buy a new home or refinance the one they are living in now, regardless of credit standing. Give us a call today at 303-482-2361 to learn how we can help you!