How to lower your debt to income when getting a mortgage

Your debt to income ratio represents the number of monthly expenses you have in relation to your monthly income. Lenders usually want this number to be no more than 50% of your monthly income. If you have a debt to income problem, this information is for you…

One of the ways to increase your debt to income ratio is to pay off the debt to qualify which generally speaking will give you the biggest bang for your buck. The other way that’s very popular to drive your debt to income ratio down is to get a cosigner. However, there is another way that a lot of lenders and most people don’t talk about it because it has a negative stigma in the mortgage industry and that’s paying discount points. Paying points mean that you are paying upfront overhead in order to secure a lower rate of interest and subsequently a lower monthly payment as a result. This discount point percentage is considered a non-recurring closing costs meaning it’s paid 1 time in conjunction with getting a new mortgage.

It might be as simple as paying a half a point or paying a full percentage point, the numbers will vary, but it can lower your interest rate from a .125  all the way up to almost a 1% in rate. A 1% reduction in your interest rate depending on the amount financed can improve your borrowing power in some cases $40-60k.
In some cases paying discount points is not an option such as if your credit score is super low e.g. sub 620 on an FHA loan for example or you’re looking at a conventional loan with a 620 credit score both of those scenarios would be automatically representative of paying discount points with nearly every lender based on the interest rate you choose.

If you’ve been turned down by another lender or you think your debt to income ratio is too high it might not be a bad idea to get a second opinion with an experienced lender who can walk you through the intricacies of mortgage finance. Paying an extra premium in discount points will lower your debt to income ratio allowing you the ability to borrow more money or support an extra homeowner association payment or insurance payment.

Looking for a mortgage? Get a no-cost quote now.


how to buy a home from family without needing any cash

How to buy a home from family without needing any cash

Have you ever considered buying a house from a family member? It’s a unique opportunity…

5 practical ways to increase your purchasing power when buying a home

How to avoid a contingent offer to buy a new home without selling your current home first

Buying a new home while still owning your current home can be a challenging process,…

why being a picky home buyer could be an issue

Why being choosy as home buyer could be problematic

You’ve decided to buy a home, you’ve gotten preapproved with a lender, your file has…

can you buy a house with less than 600 credit score?

Can you buy a house with a less than 600 credit score?

For families were looking to buy a home one of the biggest setbacks people have…

View More from The Mortgage Files:

begin your mortgage journey with sonoma county mortgages

Let us make your mortgage experience easy. Trust our expertise to get you your best mortgage rate. Click below to start turning your home dreams into reality today!