Solutions to High DTI
Have you ever been turned down because your expenses are too high for your income? This number that is calculated is called your DTI (debt to income ratio). From a lender’s point of view, the lender feels safer that you will pay your bills, including a mortgage payment, on time and completely when you have a DTI ratio that is lower than the lender’s limit. You can read more about the DTI here.
Added Bonus: When you decrease your DTI ratios, you are able to increase your purchase price. Please note that this is a direct effect between expenses to dti. If you increase your purchase price, you will increase your DTI ratio. With that said, you have to decrease your expenses enough to be able to increase the purchase price, insurance, and taxes which will all be affected by the purchase price. ***This is why you work with Unlimited Mortgage Lending to help you with this situation.
Now there are some variables in the dti calculation that can cause a change to lower the dti ratio. The following are some suggestions (not a guarantee):
- Additional Borrower: You can have another person with a higher income and fewer expenses added to the application to help decrease the DTI ratio. The borrower can either live with you in the property, or they can live in their own dwelling and not live with you but be on the application. This person, if they were the latter, would be called a non-occupant co-borrower. An example could be any of the following but not limited to Mother, Father, brother, any relative, or friend. (you do not have to be married or a couple)
- Installment Loans: These types of loans are fixed payments being paid back in installments and never changing. i.e., car loans, student loans, RV loans, etc. If anyone of these has 10 or less payments left, then do not include them in your debt payments.
- Revolving Lines of Credit: These are lines of credit that adjust by the balances owed and how much you pay. The more you pay down, the lower your minimum payment goes down. Call your credit card companies and see how they calculate your minimum payment, and then work out how much you have to pay them down to get lower payments to show up on a credit report.
- Lower your Purchase Price: This is one of the easiest to do. If your purchase price was $400,000, as an example, and your DTI was too high, then lower your purchase price accordingly.
- Change Locations: If you are looking to purchase your home in a highly desired location, the prices will be the highest. If you considered locations that are quite a distance from the location you desired, look at the prices because they will be generally lower in price. i.e., living by the beach is highly desired and will be highly expensive vs living a greater distance from the beach; the prices will be a lot lower.
- Pay Off Debts: Simply put, if you can manage to and have time to wait, then decide which of your debt(s) affects your dti the most and is within a reasonable timeframe, pay it off.
- Change the Type of Dwelling: If you wanted to buy a house at, say, $400,000 and your DTI was too high, and you have lowered your purchase price down so much that you can’t find any houses in that price range, then consider looking at other dwellings. Your choices are:
- Houses (sfr) detached or attached)
- Duplex, Triplex, or Quad (these are multiple units that are attached to each other. You live in one, and the others will help to pay for your mortgage.
- Townhouses (2-4 floors) / Villas (1 floor): These units are generally attached to each other and are in rows hence the phrase row housing.
- Condos: These are basically apartment-style dwellings for sale. Condos are generally located in buildings with 2+ floors.