Your DTI When Refinancing

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November 2019
Your DTI When Refinancing
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So youre about to Refinance your home- nice!
There are many things to consider before moving
forward. Most Borrowers tend to lose sleep over
their credit scores, job history, amount of
income, etc.. However, one of the most
overlooked variables in determining mortgage
eligibility is the Borrowers DTI (Debt-to-Income
ratio). As a matter-of-fact, DTIs are the 1
reason Mortgage applications get rejected. The
DTI is determined using the following
equation (Your monthly debt including your
future mortgage payments) monthly income (money
you earn before taxes) Your DTI The lower
your DTI, the better chances you have of
obtaining lower rates and getting your mortgage
approved. What Does Your DTI Tell Lenders? A
low debt-to-income (DTI) ratio demonstrates a
good balance between debt and income. In other
words, if your DTI ratio is a lower figure For
example, lets say your DTI is 15, which means
that 15 of your monthly gross income goes to
debt payments each month. On the other hand, a
higher DTI number can signal that an individual
has too much debt for the amount of income earned
each month. Typically, borrowers with low
debt-to-income ratios are likely to manage their
monthly debt payments more effectively and have
better chances of obtaining a better mortgage. As
a result, banks and financial credit providers
want to see low DTI ratios before issuing loans
to a potential borrower. The preference for low
DTI ratios makes sense since lenders want to be
sure a borrower isnt fiscally overwhelmed by
having too many debt payments relative to their
income. As a general guideline, 43 is the
highest DTI ratio a borrower can have and still
get qualified for a mortgage. Ideally, mortgage
lenders prefer a debt-to-income ratio lower than
36, with no more than 28 of that debt going
towards servicing a mortgage. The maximum DTI
ratio varies from lender to lender. However, the
lower the debt-to-income ratio, the better the
chances that the borrower will be approved, or at
least considered, for the credit application. So
what are some tips to lower your DTI before your
Refinance? Pay-off as much of your credit cards
as you can without closing the account. Hold-off
on taking out any loans (especially larger
amounts) during the Re nancing process.
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Try to consolidate your current Debt into lower
monthly payments
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If youll be living with someone else in your new
home (who currently has a steady stream of
income) adding them to the mortgage can help your
DTI as long as theyre not carrying too much debt.
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Consider a non-occupying co-borrower who has a
low DTI. So how can Refinancing lower your
DTI?? Consolidate Your Debt If youre looking
to Refinance, consolidating your Debt with a
Refinance loan (rolling your Debt into your
Mortgage, so youll only have to make one payment
a month, and at a better rate) can be a solution!
You can save money monthly while paying-off your
Debts. Re nance With Cash Out Option Another
option is to refinance with a cash-out option.
You can take cash out of your equity and use it
for home improvements and the amount youve
taken out of your equity will just be added to
your existing Mortgage amount. Lower Your
Interest Rate Lowering your monthly payments
with a better mortgage rate can help put more
money back in your pocket and, in turn, you can
use the leftover cash to pay down your other
outstanding Debts. Feel free to reach out to us
anytime here.
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