Debt to income, or DTI, is a way to compare the amount of debt you owe against the amount of money you make. Lenders use this metric to determine how much of a mortgage loan a borrower can handle.
Generally, lenders look for a DTI ratio of no more than 43 percent when considering a potential borrower’s ability to repay their loan. However, some lenders are now approving high DTI loans, meaning that borrowers can borrow significantly more than 43 percent of their income and still qualify for a mortgage. This can be beneficial for those who need a larger loan in order to purchase their desired property.
When applying for a high DTI loan, lenders generally take into account various factors such as credit history, job stability, and the size of the down payment. Those with a strong credit history, a steady income, and a sizeable down payment can significantly improve their chances of being approved for a high DTI loan. Having a shorter loan term can also help to reduce a borrower's DTI ratio and increase their chances of approval.
For borrowers who want to get a high DTI loan but have difficulty doing so, there are other financing options available. A borrower may be able to refinance their existing loan and extend its duration in order to lower their DTI ratio. Another option may be to seek out a higher interest rate, which can also help to lower the monthly payments. This can make it easier for borrowers to qualify for a larger loan.
For those considering a high DTI loan, it is important to remember that this type of loan comes with certain risks. Since borrowers are taking on more debt than they can likely handle, it is important to ensure that they have a plan in place to repay the loan in full without defaulting. Borrowers should also consider the additional costs of a high DTI loan, such as higher insurance premiums and risk-based fees.
In summary, high debt to income ratio loans can provide prospective home buyers with an effective way to secure larger loans and purchase homes that would otherwise be out of reach. These loans come with certain risks, however, and borrowers must consider the full extent of their obligations and commit to a repayment plan before signing any documents. By carefully evaluating their financial situation and taking into account all of the risks associated with a high DTI loan, borrowers can better ensure that they will be able to handle the debt and enjoy the benefits of homeownership.
This article was contributed on Nov 07, 2023
