So you’re thinking about refinancing your mortgage, but you’re worried because your debt-to-income ratio (DTI) is a bit on the high side. Don’t sweat it! While a high DTI can make things a little more challenging, it doesn’t mean you’re automatically out of the game.
What is DTI and why does it matter?
DTI is basically a measure of how much of your income goes towards paying off your debts each month. Lenders use it to assess your ability to handle additional debt, like a new mortgage. Generally, the lower your DTI, the better.
What’s considered a “high” DTI?
There’s no magic number, but most lenders prefer a DTI of 43% or lower. Anything above that might raise some eyebrows, but it doesn’t automatically disqualify you.
So can you refinance with a high DTI?
Yes, it is possible! It may take a little more work, but it is definitely doable. Here are a few things to keep in mind:
1. Explore different loan programs.
Some loan programs are more flexible with DTI requirements than others. For example, FHA loans allow for DTIs up to 57% in some cases.
2. Look for a co-signer.
A co-signer with a low debt-to-income ratio and a good credit score can increase your chances of getting approved.
3. Reduce your debt.
Even a small reduction in your debt can make a big difference in your DTI.
4. Increase your income.
This might not be an option for everyone, but if you can find ways to boost your income, it will help lower your DTI.
5. Shop around for lenders.
Not all lenders have the same DTI requirements. Compare offers from different lenders to find the best deal.
Tips for refinancing with a high DTI:
- Be prepared to explain your financial situation. Lenders will want to understand why your DTI is high and how you plan to manage your debts.
- Have a good credit score. This will help you qualify for the best interest rates and terms.
- Be willing to make a larger down payment. This will reduce the amount you need to borrow and make you a more attractive borrower.
- Consider a shorter loan term. This will help you pay off your mortgage faster and save money on interest.
Remember, refinancing with a high DTI is possible, but it’s important to be realistic about your expectations. It may take some extra work, but with the right approach, you can still find a great deal on your new mortgage.
Here are some additional resources that you may find helpful:
- LowerMyBills: Tips for Refinancing With a High DTI Ratio
- The Mortgage Reports: How To Get A Loan With A High Debt-To-Income Ratio
- Fannie Mae: Debt-to-Income Ratio
- Freddie Mac: Debt-to-Income Ratio
Don’t hesitate to reach out to a mortgage professional if you have any questions or need help navigating the refinancing process.
Try a more forgiving loan program
Different programs come with varying DTI limits. For instance, Fannie Mae sets its maximum debt-to-income ratio at 336 percent for borrowers who have smaller down payments and lower credit scores. Often, the limit for those with higher down payments or credit scores is 45%.
Alternatively, FHA loans permit a debt-to-income ratio of up to 2050 percent in certain situations, and your credit is not required to be excellent.
Similarly, USDA loans aim to encourage homeownership in rural areas, where incomes may be lower than in densely populated job centers.
VA loans are zero-down financing options available to current and former military service members; they are arguably the most lenient of all. If there is a lot of residual income, the DTI for these loans can be quite high. If you’re fortunate enough to be eligible, a VA loan is likely the best option for high-debt borrowers.
Consider adding a co-borrower
Involving a spouse or partner in your loan application can be advantageous. Your partner’s financial profile may be able to lower the household’s total DTI if they have a lower DTI. This strategy is particularly useful for couples seeking high debt-to-income ratio mortgage solutions. However, if your partner’s DTI is similar to or higher than yours, their inclusion might not be beneficial.
High Debt to Income Ratio Mortgage | Top 4 Options
FAQ
How to get a loan if your debt-to-income ratio is too high?
Can I get a home equity loan if my debt-to-income ratio is high?
Can you get a mortgage with 55% DTI?
Should I refinance If I have a higher debt-to-income ratio?
Some lenders refinance if you have a higher debt-to-income ratio when you agree to use your lump sum from a cash-out refinance to pay down debts. The lender will require proof that you’ve paid down the debts. The simplest way to negotiate with a debt-to-income ratio that’s higher than your lender prefers is to lower the ratio.
Can you refinance a mortgage with a low debt-to-income ratio?
Even with a lower ratio, the refinance may be unaffordable. Extending other loan terms to qualify for refinancing can result in large long-term interest payments. Calculating your debt-to-income ratio determines if you qualify for mortgage loan refinancing. Learn the key principles of debt-to-income ratios.
Can you get a mortgage with a high debt-to-income ratio?
However, when assessing DTI, only the income and debts of those on the loan are considered. A high debt-to-income ratio can result in a turned-down mortgage application. Luckily, there are ways to get approved even with high debt levels.
What if my debt-to-income ratio is too high?
When you apply for a mortgage, the lender will make sure you can afford it. Doing so involves comparing your debts and your income — formally called your debt-to-income ratio, or DTI. If your DTI is too high, you could have a hard time getting approved for a mortgage. However, there are ways to make the numbers work, even with a higher DTI.