One of the most common reasons for a mortgage loan denial is a borrowers excessive debt-to-income ratio. Unfortunately, the acceptable debt-to-income ratios are being reduced again.
As recently as a month ago a borrower was approved at a debt-to-income ratio of 61%. But Fannie Mae is about to lower that ratio to 50%. And some lenders have already reduced the acceptable limit to 45%.
So what is this ratio anyhow? It is simply the ratio of the monthly payments (debt) on your credit report divided by your gross monthly income.
For example: If the total of your mortgage payment (including taxes and hazard insurance), credit card payments and car payments is $3,000 and your gross monthly income is $5,882, then your debt-to-income ratio is 51%. A month ago you would be approved for a loan. A month from now you will not be approved.
The debt-to-income ratio does not figure in any debt that does not appear on your credit report. However, the ratio does take into account credit cards that show a zero payment. If a card shows a balance owed but a zero payment, a payment is factored into the ratio.
The reduced debt-to-income ratios are just another twist in a series of tightening regulations by lenders and agencies that will make it impossible for another sector of borrowers to purchase a home or refinance. Long gone are the days when all you had to do to get a mortgage was fog a mirror.
Posted by Terry Brunner. Terry is a Senior Loan Officer with Horizon Financial. Terry can be reached toll free @ (877) 627-9211 x150 or email TBrunner@HorizonFinancial.org. Visit Horizon’s website at www.horizonfinancial.org
