The debt-to-income ratio requirements could potentially cause delays for borrowers trying to obtain a home loan. This is especially true for borrowers who are self-employed. Since your income isn’t easily documented when you’re self-employed it’s difficult to prove you have a consistent flow of income. Lenders want to see financial stability in borrower’s backgrounds and that can sometimes be difficult for individuals who are self-employed. Your monthly debts must be strictly controlled in order to balance your debt-to-income ratio or DTI. Luckily, lenders who offer bank statement loans, or no doc loans are able to be slightly more flexible when it comes to a borrower’s DTI ratio. Below are a few examples for managing your DTI ratio which will help you get that home loan approval.
Refinancing Your Debt and Payment Plan Arrangements
Don’t worry if you have some outstanding debt, you can still get approved for a mortgage with outstanding debt. Lenders are basically looking at the monthly payments you’re making towards your debt. If your payments make up too much of your monthly income it may be harder to qualify, but there are steps you can take to lower your DTI, such as refinancing your debt or setting up a re-payment plan to those that are outstanding.
Student loans are one of the biggest known types of debt that almost everyone who has ever gone to college has. If you have numerous student loans that were deferred for whatever reason, even if you’re currently paying on them, they can take up a huge portion of your monthly income. If you have multiple student loans, try consolidating them into one payment rather than paying each one individually. Doing so may increase the length of your loans, but it will ultimately lower your payment and lower your DTI ratio so you can qualify for a home loan.
Credit cards are another one of those things many people have, some have more than one and even just the minimum amount due can add up on multiple cards. If you’re able, downsize to just 1 credit card and either apply for a new card or personal loan to use to pay off the other cards. Doing so will lower your DTI ratio as you’ll only be paying for 1 card vs however many you have. This will make it easier for you to get approved for a home loan, it will also significantly help your credit.
When you refinance your debts you’ll want to make sure that the terms to the refinance are going to be in your favor and help you and not end up hurting your chances more. Your 1 payment should be lower than the combined amount of all your payments. When refinancing your credit cards, be sure that you close all accounts which you have paid off. Not only will these few steps help significantly with lowering your DTI ratio it will also help with your overall credit score, which also plays a significant role in your eligibility for a home loan.
Paying Off Your Debt
Any debt you may have it’s best to attempt to get all those paid off or at least up to date so they are current as soon as possible. The faster you pay off your debt the higher your credit score will be raised and the lower your DTI will be. Alongside with the ability to have less debt, being able to provide at least 24 months’ worth of bank statements to your lender will help you to have a higher qualifying income. Managing your DTI is one of the most important aspects of getting an approval for a home loan. Many lenders offer different kinds of alternative documentation loans, which opens plenty of opportunities for you to get into a home. One of the most important factors in the home loan process is having all your documentation ready and in order as well as all your debts paid off or consolidated into a smaller monthly payment that doesn’t take up a huge chunk of your income.
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