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Getting a mortgage with a high-debt-to-income ratio

Are you considering buying a home but aren’t sure if it’s possible with your student loan, car payment or other debts? Getting a mortgage with existing debt or a high debt-to-income ratio can seem challenging, but there are ways to secure a mortgage even if you have other debts. While lenders look at more than just your debt when determining if you qualify for a home loan, your debt-to-income ratio plays a significant role in whether you’re ready for a mortgage.1 Learn how to calculate this ratio, why it’s so important, and the steps you can take to get your finances in order for future homeownership. These will help you determine what you qualify for if you feel that your debt might be an issue.

How to buy a house with high debt

To calculate your DTI, add up all of your monthly debt payments and divide them by your monthly income before taxes. Monthly debt payments include things like auto loan payments, student loans and credit card bills.2

(Total debt payments / Gross monthly income) x 100 = DTI

For example, if your monthly debt payments are $2,100, and your monthly income is $6,000, your debt-to-income ratio is 35%. Knowing this very important metric will give you more insights into whether or not you can get a mortgage with a high debt-to-income ratio.

Why is the debt-to-income ratio important?

According to the Consumer Financial Protection Bureau, it’s “one way lenders measure your ability to manage the payments you make every month to repay the money you have borrowed.”3 As a borrower, your debt is measured in relation to your income. If your combined monthly debts exceed 50% of your income, you may have trouble qualifying for a conventional mortgage loan. This includes your monthly mortgage payment. The following are the specific rules for the Federal Housing Administration (FHA) and Conforming mortgage home loans.

  • The maximum DTI for an FHA mortgage loan is 43% for most borrowers. However, “a higher level of debt might be allowed if there are certain ‘compensating factors,’ such as a minimum increase in monthly housing costs, or additional cash reserves.”4
  • A Conforming loan is a non-government loan that meets the funding criteria of Freddie Mac and Fannie Mae. Recently, both Fannie Mae and Freddie Mac announced that they would allow DTI limits of up to 50%. “This means it is now easier to qualify for a mortgage loan with existing debt,” states the Home Buying Institute.5

It’s time to take action

Regardless of the amount of debt you owe, there are steps all first-time homebuyers can take to prepare financially for homeownership. By focusing on the following steps and knowing more about your own situation, you’ll further understand what’s necessary to get a mortgage with existing debt. These six tips are a great place to start.

  1. Set up a budget.

    Maintaining a budget to track your income and expenses is essential to achieving a goal of owning your own home. A budget puts you in control of overspending and saving money.6 From determining your income to establishing spending amounts, here are seven steps to setting up a budget.

  2. Focus on your credit score.

    In addition to your debt-to-income ratio, your credit score affects your ability to get a home loan and the rate you’ll pay. The higher your score, the less of a risk you pose to a lender, and therefore, the more likely they’ll be to approve you for a loan.7 Start by requesting your free credit report, then checking it for accuracy. Read more about how your credit score is determined and how to build a stronger score.

  3. Get pre-approved.

    Mortgage loan pre-approval typically costs you nothing but gives you a price range of what homes you can afford, as well as how much money you should look to have saved for a down payment.

  4. Review your down payment options.

    The advantage of a larger down payment is the potential for lower borrowing costs, which may mean a smaller monthly payment. However, there are affordable lending options and down payment assistance programs designed for homebuyers who can afford monthly mortgage payments but don’t have enough money saved for 20% down payment.

  5. Educate yourself.

    Research tools and resources to prepare yourself for home ownership. Start by reviewing the Guild Mortgage first-time homebuyer guide.

  6. Ask questions.

    Arm yourself with as many questions as you need to familiarize yourself with the homebuying process. When you hire the right real estate agent and choose the best lender for your situation, they will help guide you every step of the way.

While homeownership may not be ideal for your situation right now, that doesn’t mean it’s unreachable. Personal finance site Market Watch recommends staying on top of your debts, sticking to a budget and living within your means. “Remember, don’t rush the process; unlike a typical race, there is no time limit to this one.”8 Now that you’re armed with everything you need to know to get a mortgage with existing debt or a high debt-to-income ratio, take some time to further prepare yourself by accessing our Guild Mortgage home loan guide from the link below. In this helpful guide, you’ll learn more about how to prepare yourself for homeownership with helpful tips, answers to common questions and mortgage calculators in the Guild Mortgage home loan guide.

1What Do Lenders Look at When I Apply for a Mortgage? – Home Buying Institute

2Can you buy a house if you have student loans? –

3What is a debt-to-income ratio? – Consumer Financial Protection Bureau

4How Much Debt Can I Have and Still Get a Mortgage Loan? – Home Buying Institute

5How Much Debt Can I Have and Still Get a Mortgage Loan? – Home Buying Institute

6Reasons Why You Should Budget Your Money – the balance

7How do I get and keep a good credit score? – Consumer Financial Protection Bureau

8How to buy a house even if you’re still in debt – Market Watch

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply.

By |Published On: August 22nd, 2019|Categories: Mortgage 101, Products and Programs|

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About the Author: Guild Mortgage

Founded in 1960 when the modern U.S. mortgage industry was just forming, Guild Mortgage Company is a nationally recognized independent mortgage lender providing residential mortgage products and local in-house origination and servicing. Guild’s collaborative culture and commitment to diversity and inclusion enable it to deliver a personalized experience for each customer. With more than 4,000 employees and over 250 retail branches, Guild has relationships with credit unions, community banks, and other financial institutions and services loans in 49 states and the District of Columbia. Guild’s highly trained loan professionals are experienced in government-sponsored programs such as FHA, VA, USDA, down payment assistance programs and other specialized loan programs. Guild Mortgage Company is a wholly owned subsidiary of Guild Holdings Company, whose shares of Class A common stock trade on the New York Stock Exchange under the symbol GHLD.