The debt-to-income (DTI) ratio is your lender’s way of determining whether you can afford to take out a mortgage or not. To do the math, divide your monthly expenses by your gross monthly income. The quotient will then be your DTI.
DTI ratio maximums vary from lender to lender and depend on the kind of loan you’re applying for. Generally, Rockport Properties, Inc. and other experts say that you can buy one of the sought-after homes for sale in Aransas Pass or Rockport with a DTI of about 43%. The lower your DTI ratio, the more attractive a borrower you become.
If your DTI ratio (based on your current financial situation) were higher than 50%, your chances of qualifying for a mortgage would be bad. Of course, you can repair by either making more money or minimizing your expenses at the time of your mortgage application. If you don’t have the time to lower your DTI ratio, do the following:
Make Your Income Count More
Change the perception of your “inadequate income.” Convince the loan officer that you can reliably allot a greater portion of your income to your mortgage expense. If you’ve done this in the past as a renter, provide supporting documents to strengthen your case.
When it comes to types of income that’s considered unsustainable, present evidence to counter the presumption. If you have regular gigs, produce proof with historical data showing that they’re going to continue down the road.
Negotiate for a Lower Interest Rate
Having a lower interest rate helps reduce your proposed housing payment, which then reduces your DTI ratio. You can do this by using your stellar credit rating or a large down payment as leverage.
Use a Co-Signer
If your own income isn’t good enough, involve another person with better credentials into the deal. Your prospective lender may allow you to use someone who’s near and dear to co-sign on your mortgage. In case of default, your co-signer would take over your loan repayment duties.
Failing to meet a lender’s DTI ratio requirement isn’t a reason to fret. With a bit ingenuity and resourcefulness, you can maximize certain compensating factors to have your mortgage application approved and get a favorable rate.