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Solution For High Debt-To-Income Ratio Borrowers
What are the solutions for borrowers who have a high debt-to-income ratios? Credit scores are over 700 FICO, stable job and income, and on time payment history. Have extra income but cannot be used for mortgage loan qualification purposes because there is no two year seasoning.
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6 Replies
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Debt-to-income ratio is the minimum debt payments divided by your monthly gross income.
Qualifying for a mortgage with a high debt-to-income ratio can be challenging, but there are several strategies you can consider to improve your chances. Lenders typically prefer borrowers with a debt-to-income ratio below 43%, but some lenders may be more flexible. Here are some potential solutions:
Increase Your Income:
Negotiate a raise or seek additional sources of income, such as a part-time job or freelance work.
Include other sources of income, such as bonuses, alimony, child support, or rental income.
Reduce Your Debt:
Pay off high-interest debts, such as credit cards, to lower your overall debt burden.
Consider consolidating debts to lower interest rates and simplify payments.
Increase Your Down Payment:
A larger down payment can make you a more attractive borrower. Consider saving more before applying for a mortgage.
Co-Signer:
Having a co-signer with a lower debt-to-income ratio may improve your chances. Keep in mind that the co-signer is taking on responsibility for the loan.
Consider Government-backed Loans:
Some government-backed loans, such as FHA loans, may be more lenient with debt-to-income ratios. Check the requirements for these programs.
Shop Around for Lenders:
Different lenders may have different criteria and may be more or less flexible. Shop around and explore various lenders, including credit unions and online lenders.
Reserve Assets:
Demonstrating that you have sufficient reserves (savings) can reassure lenders about your ability to handle mortgage payments.
Improve Credit Score:
A higher credit score can sometimes offset concerns about a high debt-to-income ratio. Check your credit report for errors and work on improving your score.
Consider a Co-Borrower:
If you have a family member or friend willing to be a co-borrower, their income can be considered to improve the overall debt-to-income ratio.
Debt Counseling:
Seek the assistance of a credit counselor to help you develop a plan to manage your debt effectively.
Manual Underwriting:
Some lenders offer manual underwriting, which allows for a more individualized assessment of your financial situation. This can be helpful if your circumstances are unique.
It’s crucial to communicate openly with potential lenders about your financial situation. Some lenders may be more understanding or flexible, especially if you can provide a strong case for your ability to handle mortgage payments responsibly. However, it’s important to be realistic about your financial situation and not take on more debt than you can comfortably manage.
Shop for lower homeowners insurance. Lower homeowners insurance premium can lower your debt-to-income ratio.
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This reply was modified 9 months, 2 weeks ago by
Sapna.
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This reply was modified 9 months, 2 weeks ago by
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The short answer is the borrower needs to pay down their debt. Is the borrower trying to access equity in a cash-out refinance? If yes, they can pay off the revolving debt and get the DTI ratio down in the transaction. A quality processor will know what to do. If you are processing your loans as the L.O., this is the best way to move the C.O. refi forward. If we are talking about a purchase, it is straightforward. The borrower will need to pay down the debt with savings. You may need to look at loan programs that will help with DPA. If you are going to need the borrower to pay the debt down with funds possibly set aside as closing costs, earnest money, or down payment look for FHA FTHB programs, USDA or VA loan programs.
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At Acra Lending, we go up to a 50 DTI, nonQM.
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What are the basic lending requirements on non-QM loans besides the debt-to-income ratio. Here are the questions I have on non-QM loans on owner-occupant, second homes, and investment properties.
1. Loan to value
2. How many credit tradelines is required and do you take non-traditional credit tradelines.
3. Verification of rent required?
4. Recent late payment allowed?
5. What are the minimum and maximum loan amounts
6. Are credit disputes allowed?
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I heard there are DSCR loans now with no DTI… LTV’s are a bit lower but could be a great program for some.
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There are also NO RATIO Mortgage Loans. I think they want 75% loan to value on no ratio Mortgage Loans.