If you are in the process of home buying or even refinancing a Sonoma County Home, and are using mortgage loan financing your monthly reoccurring debts are going to be used in determining your maximum mortgage amount you can qualify for. This will ultimately determine whether not your loan is approved and subsequently funded.
In mortgage loan transaction especially in the purchase situation where their deadlines involved along with thousands of dollars earnest money the last thing you want to worry about is having a problem with your debt to income. Lenders use DTI for short which is the maximum amount of debt that you presently have plus the total new house payment divided into your gross monthly income. The debt to income ratio is a benchmark factor in determining whether the loan will proceed to funding.
When home buying, minimize your monthly debts as much as you possibly can.
Following are the typical monthly reoccurring debts mortgage lenders use in their calculation:
- Car loans
- student loans
- credit cards
- installment loans
- personal loans
- court-ordered debts
Note even if the monthly debts are not yours, they are still factored into your debt to income ratio. If you cosigned for a friend or for a family member and a debt obligation belongs to someone else, it shows up on your credit report mortgage lenders will assume you are responsible for it under all circumstances.
A word of advice-don’t cosign for anyone if you are thinking about purchasing or refinancing house.
So what happens when you’re in the process of buying a home and there’s a debt to income ratio issue?
Well these Monthly debts can be paid off. It’s called paying off debt qualify and this can usually come in the form of your own funds or funds in the form of a gift. Gift money is permitted so long as there is a paper trail.
Here’s an example of a situation where paying off debt to qualify make sense:
John Borrower has reoccurring debt of $400 per month on a balance of $10,000 owed to American Honda finance for his decked out Honda Accord. He also has a Visa card payment of $100 per month with the outstanding balance of $1680.
John’s borrowers income got reduced when the underwriter for the mortgage lender did an audit of John borrowers federal income tax returns (as they do for each and every loan). John’s qualify level monthly gross income was reduced by $800 per month because he was claiming additional business expenses on his income tax return which his employer does not reimburse him for. As a result you get to income ratio went from 45% of his gross monthly income to now 55% and now the loan has been suspended pending what John Moore would like to do withdraw the loan or pay off debt to qualify.
John has been in the home buying process for the last 15 days of his 30 day escrow, and he knows he can afford the house. John is also short on cash because he’s a first time home buyer and even though his new house payment is $2117 per month and he knows that he can handle the credit card payment and auto loan payment, the mortgage lender will not allow the loan to fund has structured. So John goes to his dad gets a gift in the form of a gift letter along with the bank statement to show John’s dad has the ability to get the money and the car is then paid off in full. John’s total monthly reoccurring debts is just the hundred dollars per month on the Visa card.
John’s mortgage lender recalculates the figures and all of a sudden, John is approved with flying colors! the same situation can be applied on a refinance scenario paying off debt to qualify in order to reduce house payment over the long haul is permitted.
If if you’re planning on home buying in Sonoma County or even refinancing, remember you can pay off debt to qualify for that new mortgage loan.
The majority of mortgage lenders allow you to pay off debt qualify. If yours doesn’t? Get a second lender opinion. Paying off debt to qualify as one of the best known mortgage tricks in the book to quickly approve loan and reduce monthly debt burden.
Paying off debt to qualify allows home buyers and current homeowners in the process of refinancing the ability to qualify for a mortgage despite tough underwriting criteria. If you are going to be home buying in Sonoma County, remember paying off debt to qualify.