Debt to income ratio or DTI is one of the primary calculations to determine credit worthiness for obtaining a home mortgage. This along with your FICO score or Fair Isaac Corporation Score, will determine whether you can qualify for a mortgage.
For most lenders, the DTI needs to be under 43% and that’s total debt with an ideal DTI is under 36%. As an example $2000 of monthly debt and $5000 of net income is a 40% DTI. With this DTI you may still qualify for a mortgage if your FICO score is higher than 680. If your FICO is 650 you may not qualify there are several other factors considered that I won’t go into at this time.. Here is a link to a DTI calculator
When it comes to FICO score you are able to pull your score from websites like Credit Karma generally your actual FICO score will be as much as 30 points higher than what a lender will find when they do a credit check. The lenders use a much more comprehensive report than we can pull on our own. So keep this in mind if you have a FICO of 700 from a free website in reality your score may be about 670. Loans are classed A paper or Prime is the best rates and terms, B paper is considered by the lender higher risk but the lender will still lend but with higher interest rates. With a score under 650 the loan would be considered “SubPrime” and lender will loan but with much higher rates and a lot of scrutiny.
There are lenders who will lend to people who have a FICO as low as 580 but you also need to have a low DTI and expect to pay at least 1% or 2% more in interest rates.
Student loan debt is the biggest debt for most first time buyers under the age of 35 and if you aren’t current on your student loans then you can forget about getting a mortgage. I think the average student loan debt is over $30,000. In some cases you can workout with the lender of your student loan and may be able to apply for a deferment and forbearance of the loan but you’ll need to work that out before applying for a mortgage.
My advice is to start as much as 6 months before you want to buy in getting your financing in place. Even if you think you have perfect credit. There is a very high percentage of people who have incorrect information on their FICO score. It takes anywhere from 60 days to 120 days to get incorrect information removed from your report.
I hope this has been helpful. Also, I can recommend a couple of extremely good mortgage people here in the Metro-Plex that will do an excellent job in getting you a loan regardless of you situation Please give me a call and I’ll be happy to share these mortgage people to you.
My Cell is 817-932-4900