One step in home ownership is securing a loan through mortgage lenders, which isn’t an easy task, especially for first-time home buyers.
If you are among the hundreds of thousands of Americans who have debt, it can be tricky to get approved. Here we are discussing all about debt, and how it plays into your approval rate when buying your next home.
Debt to Income Ratio
Before a lender can approve you for any loan, they will look at your DTI Ratio. This is termed your debt to income ratio and provides information on the probability of you making your loan payments each month. Generally, DTI limits are between 40-50%. A Good DTI Ratio is 35% or below. There are many different types of debt that factor into this ratio, student loans and credit card debt just to name a few.
So how do I know my DTI Ratio? Here is how to tell. Add up all of your monthly bills that you pay towards debt. After you find this number, divide it by your gross monthly income. Written in equation form it would look like this:
DTI= Total Monthly Debt Payments/ Gross Monthly Income
Student Loan Debt
For most young families, paying off student loans is part of the monthly budget. You finished schooling at the top of your class, but now have thousands of dollars in student loan debt to start paying off. It is rare that graduates right out of college make their dream salary, so chances are you are starting to pay off this debt while trying to make other ends meet. You may also be with a partner or spouse who also has thousands of dollars in student loan debt in addition to yours, doubling your monthly installment.
Credit Card Debt
Credit card debt is another factor mortgage lenders take into consideration when looking at your chances of getting approved for a loan. The less credit card debt you owe on your name, the better. A large balanced owed can greatly increase your debt to income ratio and affect your approval odds.
Accidents and unplanned medical costs can come out of nowhere, often landing you in debt. Making payments towards medical bills each month will factor into your DTI Ratio. Do your best to keep these accounts out of collections offices as they can start to affect your credit in a negative pattern which can also affect your approval odds.
Car Notes or Auto Loans
Your monthly car payment is factored into calculating if you are able to be approved for a loan or not. Having a car payment that is less of an expense each month would potentially be beneficial as it would decrease the output for your DTI Ratio.
Contact Sell Your OKC Home
We hope you enjoyed our information on what kinds of debt that mortgage lenders consider. Here at Sell Your OKC Home, we are here for you when you are ready to sell. We buy houses in any condition in Oklahoma City, Oklahoma, and the surrounding area and are prepared to give you a cash offer for your house within 48 hours. Call us at (405)-369-8351. Contact us today!