Debt to Income Ratio: Information for Home Buyers

All About the Debt to Income RatioDebt-to-income ratio is a common term that home buyers start to think about when they begin shopping around for a home loan. Having a high debt-to-income ratio can potentially prevent a home buyer from qualifying for a mortgage. The more that a home buyer knows about debt-to-income ratio, the better prepared he or she will be when it comes time to take out a home loan.

For informational purposes only. Always consult with a financial advisor before proceeding with any real estate transaction.

What Is Debt to Income Ratio?

Debt-to-income ratio is the amount of money that a home buyer pays to lenders versus the amount of money that the buyer makes on a monthly basis. Debt-to-income ratio is calculated based on monthly income and expenses. For example, a borrower who must pay $600 in credit card debt, car loans and other debts, and who makes $4,000 per month, has a 15% debt-to-income ratio.

Why Is Debt-to-Income Ratio Important?

Debt-to-income ratio is important because the more debt that a person has, the more likely it is that they will at some point or another have difficulty making monthly mortgage payments. A low debt-to-income ratio is considered to be a good thing when an individual applies for a mortgage. A high debt-to-income ratio can cause the mortgage application to be declined, depending on how high it is.

How Much Debt Is Too Much?

Lenders draw the line at a 43% debt-to-income ratio, with around 1/3 of that debt dedicated to the mortgage. People who will have more than 43% debt-to-income ratio after taking out the mortgage are likely to have their mortgage application turned down. However, there are exceptions. Lenders may go as high as 50% debt-to-income ratio under some circumstances. Home buyers who want to take out a mortgage but who have a large debt-to-income ratio may need to shop around with different lenders to get a loan.

What If You Have Too Much Debt to Get A Mortgage?

A person who has too much debt to qualify for a mortgage typically has two options: pay off some debt, or make more money. Many people will tackle this problem by paying off a credit card or a car loan. Paying off debt can be difficult for someone who is also trying to save for a down payment or save money for moving expenses. This can take careful budgeting and may require a lot of time. Others may try to consolidate debt or pay off debt with a loan that has a lower monthly payment.

Instead of paying down debt, some people will instead ask for a salary increase at work, or seek a promotion. The method that an individual chooses to lower their debt-to-income ratio depends entirely upon the person’s circumstances.

Where Can You Find Out More Information?

Home buyers who want more information about debt-to-income ratio can find out more by talking to a reputable Apple Valley lender. A good lender can help a home buyer qualify for a loan. For more information about debt-to-income ratio, contact a lender in your area.

For informational purposes only. Always consult with a financial advisor before proceeding with any real estate transaction.

Need to sell your home?

Find out how much it will sell for today!

Check your equity now in 60 seconds
Kris Lindahl Real Estate

Home of the one day listing contract

Leave a comment

Agency Relationships In Real Estate Transactions

Continue Reading

Waterfront House Plans For Best Views: Luxury Lake House Design

Waterfront homes have traditionally enjoyed popularity among discerning homeowners. Whether a home is at the seashore, has lake frontage, or is situated close to a fishing stream, the proximity of water can be a formula for “the good life.” Homes with water views can also represent a unique financial investment. Waterfront homes traditionally appreciate faster […]

Continue Reading

Luxury Patio Ideas For Waterfront Homes: Outdoor Opulence

Whether they’re designed for vacation getaways or full-time living, waterfront homes have one attribute that most homes cannot duplicate: the undeniable appeal of water views and access to the waterfront lifestyle. This calls for creating an outdoor “oasis” that visually expands living space and adds a new dimension of enjoyment. Looking to elevate your lakefront […]

Continue Reading

Click to request a no-obligation Guaranteed Offer on your home right now.