Soon after tying the knot, many couples set their sights on buying homes, one of life's major financial undertakings. Mortgage lenders consider many factors when deciding whether to approve loans, including debt-to-income ratio, which is the total monthly income of the borrowers divided by their monthly debt. The higher your debt-to-income ratio, the less likely a lender is to approve you for a mortgage, bu you can get a mortgage even with a high debt ratio.
Put Up a Large Down Payment
Making a large down payment toward a home can increase your chances of getting approved for a loan despite your high debt-to-income ratio. Each dollar you put into a down payment is a dollar less that you have to borrow. A large down payment also results in less risk for the lender because you are less likely to abandon a mortgage if you have already invested a large amount in your home. If you fail to pay your loan, the lender can potentially foreclose on the home and sell it off, pocketing your down payment in the process.
Get a Cosigner
Borrowers with poor credit scores and high debt-to income ratios might not be able to get approved for a mortgage on their own, even with significant down payments. Getting someone with good credit to cosign on a loan can get you approved even if your credit score and debt ratio are lackluster. When someone cosigns a loan, he has to pay a debt if the primary borrower fails to pay. Essentially, the cosigner takes on the risk that the lender is unwilling to accept.
Consider Government Loan Programs
Government loan programs can be a good place to turn if you have trouble getting approved for a mortgage from a traditional lender. According to Lending Tree, the U.S. Federal Housing Administration and the Department of Veterans Affairs offer low-interest loans to borrowers with debt to income ratios as high as 41 percent. Many traditional lenders are wary of lending to borrowers with debt-to-income ratios above 36 percent.
While it is possible to get a mortgage with a high debt-to-income ratio, it is important to avoid biting off more home than you can chew. A high debt ratio leaves less money in your budget for things such as entertainment, travel and eating out. A financial emergency, such as losing a job or a large unexpected expense, can be more difficult to overcome when your monthly expenses are high. Buying a less expensive home can give you a lower debt-ratio and leave more breathing room in your monthly budget.
- LendingTree: Calculating your Debt-to-Income Ratio
- Banrkate: Mortgage Basics - Debt-to-income Ratios
- LendingTree: What is an FHA Loan?
- U.S. Department of Housing and Urban Development: Let FHA Loans Help You
- U.S. Department of Veterans Affairs: Eligibility Frequently Asked Questions
- The New York Times: Co-Signing on the Dotted Line
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.