Debt
to Income Ratio
When
applying for a mortgage, one of the very first things a lender will look
at is your debt
to income ratio. What is the debt to income ratio, and how does it
work?
Your
debt to income ratio is the amount of money you owe to creditors
per month, divided by the amount of money you make per month (including
your projected monthly mtg.
payment).
So,
if you make a gross monthly income of $3500.00, and your monthly bills
run you around $1350.00 per month (including projected monthly mtg. payment),
than your debt to income would be 39%.
A
39% debt to income ratio is not too bad. Most traditional banks allow
up to 40%. There are banks out there that will allow as high as 55% and
possibly higher, although I have never come across one.
Even
though you may pay your bills on time every month and have rock solid
credit, it is very safe to say that a lender will turn you down if your
debt to income is above their requirements, so be prepared to pay
off some debt in order to get your debt to income ratio down.
If
the lender
requires that you have a debt
to income ratio of 45%, and your DTI ia 45.8%, the lender at times
will make an exception for you based on credit, and payment history. During
my experience over the years, when a debt to income ratio was this tight,
it usually wasn't that hard to resolve. However it will take some negotiating
skill on the part of your loan
officer, or broker.
Doing
Your Mortgage Homework
Don't
Let Bad Credit Stop You
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