Are you looking for a house to buy but are worried about procuring loans for high debt-to-income ratio? Well, you have come to the right place. Here, you will get the basic information about the debt-income ratio and the different loan options you can avail.
What is a High Debt-to-Income Ratio?
Before you start the journey of home ownership, you need to understand what exactly Debt-to-Income ratio is. It is a measure of your monthly income spent towards clearing your debts. A low DTI ratio shows a good balance between your income and debt repayment. In simpler terms, if your DTI ratio is 12%, this shows that about 12% of your monthly income goes towards debt repayments. A high DTI ratio can be a concerning indicator for lenders as it shows that you have large debts to clear against a smaller monthly income. This makes procuring loans for high debt-to-income ratio borrowers harder but not impossible.
Top 3 loans for High Debt-to-Income Ratio Borrowers:
- FHA loans:
One of the best choices for high Debt-to-income borrowers is FHA loans. These loans are backed by the Federal Housing Administration (FHA). Therefore, the DTI limits for these loans are more flexible. You can now procure mortgages with a high DTI of 60% at Dream Home Mortgage. They not only offer flexible DTI ratio loan options but also only require a low-down payment of 3.5%. In some cases, if you have strong supporting factors such as additional income, financial reserves, and a stable employment history, the chances of getting a loan for a higher DTI ratio can be managed.
- Conventional Loans:
Conventional loans are another great loan option in addition to FHA loans. These loans offer great interest rates and are perfect for those borrowers looking to buy a larger property. What makes conventional loans an attractive option is that they offer constant interest rates for up to 15 to 30 years? But the only downside is that you need a stellar credit score, a good DTI score, and up to 6 months of house expenses saved beforehand. As these are non-government-backed loans given mostly by private lenders, they need to ensure that you are capable of repaying the mortgage back.
- VA loans:
If you are an active military member or an out-of-service soldier, you are in luck. You are now eligible for VA loans for high debt-to-income ratios, which are tailored for military veterans. You can acquire a mortgage even if you have a high DTI ratio of 41%. Another great perk about this type of mortgage is that you won’t have to pay for Private Mortgage Insurance (MPI). This mortgage option also has low interest rates and minimum fluctuations. Therefore, making homeownership for veterans as easy as possible.
How do you calculate your Debt-to-Income Ratio?
The first step you need to take is calculated your DTI ratio and the mortgage you are going to procure. Why do you need to have a proper figure? Simple, it helps narrow things down. DTI ratio is a metric set by lender to assess rather or not you are eligible for a mortgage or loan, which is why you also need to track your figures.
First you need a collective sum of all your standing debts like auto loans, student loans and credit card payments etc. After that you should calculate the cumulative sum of your monthly income pre-tax. Now divide the debt with your total monthly income. The resulting quotient you will be left with will be a decimal figure which you need to multiply with 100. The resulting percentage will be your DTI ratio.
What is the maximum DTI ratio for a personal loan?
Generally, when you are looking to purchase a house, you want your DTI ratio to be as low as possible. You can do that by repaying your standing debts and making sure you do not procure more. When you are applying for home loans, lenders are typically looking for low DTI ratio which is typically less than 36%. Now on the other hand, if you have a higher DTI ratio somewhere around 43% to 45% you might still be able to get a good loan or mortgage option.
Can you get a loan for a high DTI?
Yes, you can. Nowadays, there are many mortgage lenders who provide tailored loans for high debt-to-income ratio borrowers. There are three different mortgage options you can look into when you decide to buy your very own house.
Get the best loans for a high debt-to-income ratio at Dream Home Mortgage!
Now, you have a comprehensive understanding of what exactly is Debt-to-Income (DTI) ratio, the perks of low DTI, the downsides of high DTI ratios, and the different loans for high debt-to-income ratio. You can avail of one of these loan options by simply consulting one of the best loan consultants, Hussein Panjwani, at Dream Home Mortgage. Under his guidance, thousands of families have found their Dream homes, and so can you. So, what are you waiting for? Book your free consultation today!
