If you are a potential home borrower and you are saddled with a high debt to income ratio, you are going to need to Reduce High DTI Ratio for the fact that this can be an easy way to get a mortgage loan denial. First, if you don’t know, let me explain what your debt to income ratio is. Debt to income ratio can be calculated on the front-end or the back-end with the back-end holding the most significance. By definition the back-end debt to income ratio totals up all your monthly debt obligations, adds the potential new home payment to it and then divides this by the monthly gross income. Also, not all debt to income ratios are created equal and different loan programs have different standards and requirements for debt to income. For example, if you have a 620 FICO credit score, your backend ratio for an FHA Loan will be 56.9%. If your FICO score is under 620, then an FHA Loan can only be had with a 43% debt to income ratio.
With regards to conventional loan mortgage guidelines, Fannie Mae and Freddie Mac create the rules and guidelines and the maximum debt to income ratio you can have is 45% with no exceptions like FHA has. USDA Loans have a maximum debt to income ratio of 41% and jumbo loans normally come in at 40% or so.
If you do the math on your personal finances and you can figure out your debt to income ratios are high, then there are some solutions in an effort to Reduce High DTI Ratio. If you have some extra cash you can use, it is always easiest to Reduce High DTI Ratio by paying down your credit cards. There is a caveat here and that is if you are getting an FHA Loan or Conventional Loan and need to pay down your credit card balances to get approved, it will be required that you also close the credit cards as well once they are paid off. If you pay off your balances prior to the approval process then you will not be required to close your credit cards. These paid off balances will need to be seen on the credit report and if they aren’t showing, you can always request a rapid rescore to have them show before applying.
In another effort to Reduce High DTI Ratio you can evaluate all the expenses that are going into your backend debt to income ratio. If you see that you have a high monthly rate on your homeowners insurance you can look into getting less coverage or finding a cheaper provider of insurance. As there are many different providers out there, you can normally play one against another, or just switch companies all together.
A final way to get creative and Reduce High DTI Ratio is by driving down your monthly mortgage payment by reducing your interest rate by buying down the rate you are currently paying. This can turn out to be an expensive proposition but is also an option as well. If you are getting a seller’s concession, you can use all of these funds to buy your rate down as much as possible. For example, reducing your interest rate from 4% to 3.5% on a $200,000 loan will save you $57 per month.
As you can see there are ways to try and Reduce High DTI Ratio, you just need to be strategic and make sure the route you take is the right one. You can ensure this by working with an educated professional like myself. We can go over all your options and develop a plan to get you approved. Please feel free to call me at 888-900-1020, email me at firstname.lastname@example.org, or visit www.loanconsultants.org to apply or get your credit fix information at.