Programs Help Mortgage Debt To Income
Apr 04, 2019 Here are some programs designed to help seniors pay for food: The Supplemental Nutrition Assistance Program, better known as SNAP, helps low-income seniors with groceries by providing monthly stipends. To qualify you must show proof of limited income and resources. The maximum gross monthly income is 130% of the federal poverty level, which is. Your debt-to-income ratio measure the amount of your income being spent on debt each month. Most mortgage lenders consider the ratio to calculate the monthly mortgage payment you qualify for. It can be helpful to calculate your own debt-to-income ratio so you can see whether you've overborrowed relative to your income.
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- 1 The Amount of Income Needed for a Mortgage
- 2 The Mortgage-to-Value Ratio
- 3 How do I Refinance a Loan With a High LTV?
- 4 How Much Money Can You Get Out on a Cash Out Mortgage Refinance?
People with a high debt-to-income ratio are more likely to run into trouble making their monthly payments and might have difficulty getting approved for a loan. Fortunately, it's possible to tame your ratio by paying down and restructuring your debts, and some refinance programs are more forgiving than others for applicants carrying higher debt loads.
Establish Front-End and Back-End DTI
Lenders look at two types of debt-to-income ratios when you apply for a loan. The front-end ratio measures what percentage of your monthly income would go toward the monthly mortgage payment, mortgage insurance, property taxes and other housing expenses such as homeowners association fees. The back-end ratio weighs your monthly income against all your monthly debt obligations. This includes car loans, student loans and credit cards as well as your housing costs. Suppose you earn a monthly income of $8,000. Your housing expenses are $2,000 per month, and your other debts come to $1,000. In this example, your front-end DTI is 25 percent and your back-end DTI is 37.5 percent, commonly expressed as 25/37.5.
Seek a More Lenient Program
Different refinance lenders have different limits, but as a rule of thumb, you're looking at the following limits:
- Federal Housing Administration: 31/43, and a back-end of up to 50 percent in some cases
- U.S. Department of Veterans Affairs: A single back-end of 41 percent
- U.S. Department of Agriculture: 29/41
- Fannie Mae: 28/36, and a back-end of up to 45 and even 50 percent in some cases
Generally, the more lenient back-end ratios are available to homeowners with strong compensating factors such as high credit scores and a significant amount of equity in their homes. With an FHA mortgage, for example, you'll need a credit score above 580 and savings equal to at least three monthly mortgage payments to qualify with a 50 percent DTI.
Tame Your Ratio
The quickest way to reduce your DTI is to pay down your monthly debt, such as credit card balances. It's also possible to reduce your ratios by extending or restructuring your longer-term debt. For example, extending a student loan over a longer term will reduce your monthly payments, and transferring a high credit card balance to a new card with a lower introductory rate can lower your payments for just long enough for you to qualify for a home loan.
Consider Streamline Refinancing
If you already have an FHA mortgage and your account is in good standing, you could refinance to a lower rate using the FHA's streamline program. Since you already qualified when you first took out your FHA loan, the FHA doesn't require you to qualify again. This means there's no income verification and no paperwork to show your debt-to-income ratio, so it doesn't matter if your ratio has risen since you closed your current loan. For military homeowners, the VA offers a similar streamline program known as the Interest Rate Reduction Loan.
Check Out Nonconforming Loans
A nonconforming loan is simply a loan that does not conform to Fannie Mae and Freddie Mac underwriting guidelines, usually because the borrower has an imperfect credit history, a lack of job stability, self-employment status or a high debt-to-income ratio. While riskier than conforming loans, nonconforming loans allow homeowners who might not otherwise qualify to refinance their homes. A nonconforming loan usually comes with a higher interest rate and higher fees, so if you're considering this option, it's worth shopping around for the best rates.
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About the Author
Jayne Thompson earned an LLB in Law and Business Administration from the University of Birmingham and an LLM in International Law from the University of East London. She practiced real estate law in various “big law” firms before launching a career as a commercial writer. Her work has appeared on numerous property sites including Housemaster, For Rent and Active Rain. Find her at www.whiterosecopywriting.com.
Mortgage Debt To Income Guidelines
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