A First-Time Homebuyer's Guide, Start To Finish - The Strategic First-Time Homebuyer Book - Chapter 4 Your Debt To Income Ratio
April 27, 2026
r/NewbHomebuyer
......This is chatper 4, just scroll down a little beyond the intro and you'll pick up where you left off......
Hey guys, I spent a lot of time writing this book, and I had this subreddit in mind as I was writing it, so I thought I would post it here for you for free. If you want the physical book you can always go on Amazon, but here's my gift to you 😄
I'll include links so you can jump between chapters easily.
I hope you find it helpful.
The Strategic First-Time Homebuyer
Start to finish, with strategies to get approved and save thousands in interest, costs, and the down payment.
Contents
Chapter 1 How Much Can I Afford? 3
Chapter 2 How Much Cash Do I Need? 16
Chapter 3 How To Find The Down Payment 30
Chapter 4 Your Debt To Income Ratio 41
Chapter 5 Choose Your Lender 69
Chapter 6 You’ve Been Denied (Your Credit) 80
Chapter 7 Selecting a Real Estate Agent 90
Chapter 8 Shopping For a House108
Chapter 9 Under Contract: Inspections and Appraisals 121
Chapter 10 Under Contract: Rate Lock and Underwriting 129
Chapter 11 How To Lower Your Rate 144
Chapter 4
If you’d like to know ahead of time whether you’d even qualify for a mortgage, I’ll review what the maximum debt-to-income ratio is for conventional and FHA mortgages. (VA loans don’t have strict debt-to-income limits, but they do have residual income requirements.)
First, I need to explain what your debt-to-income ratio (DTI) is.
It’s your monthly debt payments divided by your monthly gross income.
Gross income is the money you make before taxes are taken out.
Here’s the simple math for somebody working 40 hours a week:
- Hourly rate ($30 example) × 40 hours per week = $1,200 per week
- Weekly rate ($1,200) × 52 weeks = $62,400 per year
- Annual rate ($62,400) ÷ 12 months = $5,200 per month
If you are paid an annual salary, it’s easier:
- Annual salary ÷ 12 = monthly income
Now take your monthly debts. These are the debts that show up on your credit report.
Do NOT include:
● Cell phone bill
● Cable/Netflix bill
● Your Pickleball USA monthly membership fee
Include things like:
● Your credit card payment
● Your auto loan payment
● Your new mortgage payment (yes, the payment we calculated back in Chapter 1)
● Your student loan payments (if it’s deferred, I’ll show you how underwriting still accounts for it)
● Child support
● Alimony
● Collections in aggregate totaling over $2,000 (I’ll explain more here later)
Here’s the simple formula:
● Total monthly payments (including the new mortgage) ÷ monthly income = your DTI ratio
Example:
● Someone works 40 hours per week at $30 per hour.
● This person has a car payment of $200 and no other debts.
● The new mortgage payment will be $2,200 (no HOA).
Here are the steps:
- $30 × 40 × 52 ÷ 12 = $5,200 per month (income)
- $2,200 + $200 = $2,400 (debts)
- $2,400 (debts) ÷ $5,200 (income) = 0.4615 (46.15%)
This person’s total debt-to-income ratio is 46.15%.
Will Your Debt To Income Ratio Pass Underwriting?
Now that you’ve calculated your total debt-to-income ratio, you’re wondering if it will pass underwriting standards.
Here are the maximum allowed debt-to-income ratios for conventional and FHA mortgages:
● Conventional = 49.99%
● FHA = 56.99%
In the example earlier, we ended up with a 46.15% total ratio, and that would technically pass. Keep in mind that there are other factors that weigh into an underwriting decision, so this alone doesn’t give you a gold star or checkmark. This is just a way to measure whether you’d get a hard stop or not. If your total debt-to-income ratio is above this percentage, it won’t pass as is.
One Correction For FHA Loans
With FHA, I mentioned the maximum total debt-to-income ratio is 56.99%. What I didn’t mention is that FHA uses another ratio called the housing-to-income ratio.
That is your housing payment (mortgage payment + HOA) ÷ your monthly income.
FHA’s limit on your housing-to-income ratio is 46.99%. The lingo mortgage professionals use is “front-end” and “back-end” ratios.
● Front-end = housing-to-income ratio
● Back-end = total debt-to-income ratio
The FHA ratios are limited to this:
● 46.99% front-end
● 56.99% back end
Let’s use the earlier example again.
● $2,200 (housing payment, no HOA) ÷ $5,200 (monthly income) = 0.4230 (42.30%)
So this person has a 42.3% front-end ratio and a 46.15% back-end ratio.
Technically, this is under the maximum allowable ratios, so it passes that quick test.
Remember: just because you’re under these ratios doesn’t mean you automatically get approved. It’s just a calculation to see if you’ll get a hard stop or not. If you’re over these ratios, you’ll be denied at the door.
Student Loans
If you have student loans, read this section about how underwriting factors this into your debt-to-income ratio.
If you don’t, you can skip this section.
Here’s how a student loan will affect your payment for the following mortgages:
● Conventional loans being sold to Fannie Mae
● Conventional loans being sold to Freddie Mac
● FHA loans
● VA loans
● USDA loans
Quick explanation: Fannie Mae and Freddie Mac buy mortgages to free up capital for lenders to help more borrowers. Fannie and Freddie typically mirror each other in underwriting guidelines, but student loans are where there’s a slight difference.
Even if your student loan is deferred, mortgage underwriters will include a placeholder for a monthly payment anyway. These placeholders serve as a conservative estimate of a future monthly payment.
Here are those placeholders:
● Conventional loans being sold to Fannie Mae: 1% of the balance as a monthly payment
● Conventional loans being sold to Freddie Mac: 0.5% of the balance as a monthly payment
● FHA loans: 0.5% of the balance as a monthly payment
● VA loans: 5% of the balance, divided by 12
● USDA loans: 0.5% of the balance as a monthly payment
Income Driven Repayment Plans (Student Loans Continued)
You might run into a case where you have student loans that show as deferred on your credit report but, in fact, have a monthly payment dictated by an income-driven repayment plan.
The only mortgage program that will use your income-driven repayment plan payment rather than the placeholder amount is:
Conventional loans being sold to Fannie Mae
If you have a lot of student loan debt that is affecting your ability to get approved, I’d suggest speaking with a student loan expert who can help you create an income-driven repayment plan.
If you already have an income-driven repayment plan and you’re being told by your lender that they won’t use the plan (even after you tell them to go conventional with Fannie Mae), then you need a new lender. I, or someone on my team, can help connect you with someone who understands these concepts.
If you’re in need of a lender that offers a good physician loan, include that in your notes.
Collections Totaling Over $2,000
If you are looking for an FHA loan and have collection accounts that total over $2,000, underwriting will take 5% of that balance and count it against your debt-to-income ratio.
You’re not required to pay it off, but just know that it will be counted against your DTI.
Quick math:
$2,500 in collection accounts × 0.05 = $125 per month
This is a placeholder calculation.
If Your Income Is Not Simple
There are people who get paid a little differently than your typical hourly or salary worker.
If you aren’t salaried and you aren’t guaranteed a set number of hours per week at an hourly rate, then read this section to understand how underwriting will verify your income.
If you are salaried or hourly with a guaranteed number of hours per week, then you can skip this section.
Having a basic understanding of how underwriting will treat your income will help prevent you from being surprised by their decision.
Here are some common income types that will be treated differently in underwriting:
● Hourly with varying hours
● Commission/bonus/overtime
● Self-employed income
● Seasonal income
● Second jobs
● Piece rate/paid by the mile
Hourly With Varying Hours
When I worked at a restaurant, my hours were never guaranteed. If it was slower than expected, management might have sent me home. If it was busier, I would have stayed later.
If that’s how you’re paid, then your income will be averaged out over a year.
It’s simple to calculate this. Just take your regular pay from your end-of-year pay stub and divide that by twelve.
If you started midyear and you’re into the next year, then you’ll add up the regular pay from your end-of-year pay stub and your current year pay stub, then divide it by the number of months.
Example:
● I started on May 1, 2025.
● It’s currently July 31, 2026.
That’s 14 months.
● Take 2025’s final pay stub and look at regular pay. Let’s say it’s $31,123.
● Take your current pay stub (assume it’s good through July 31). Let’s say it’s $41,677.
That’s $72,800.
● Take $72,800 ÷ 14 = $5,200 per month.
That’s your average pay.
If you can’t total a full year from one job, then a combination of your previous job and your current job will be averaged out.
Commission/Bonus/Overtime
This type of income is averaged out over two years.
If you don’t have two years of this type of income, you may be able to get away with one year, but underwriting needs something from your employer stating that it will likely continue.
For now, plan on a two-year average.
You can find this on your year-end pay stub. Let’s give an example:
● Year 1 overtime: $10,000
● Year 2 overtime: $11,000
This gives you $21,000 over two years.
● $21,000 ÷ 24 = $875 per month
If you started midyear and you’re currently midyear, here’s how it might look in an example:
● May 2024 – December 2024 = $6,125
● January 2025 – December 2025 = $10,500
● January 2026 – July 2026 = $6,125
The total months here are 26, and the total overtime income is $22,750.
● $22,750 ÷ 26 = $875 per month
Bonus and commission income are treated similarly.
Self Employment Income
Self-employment can be tricky because the income is in the owner’s hands.
On one hand, you don’t want to pay taxes, so you write off what you can to pay less in taxes. On the other hand, you want to qualify for a mortgage.
Here’s your first strategy: don’t misrepresent your income. Dabbling in mortgage fraud is not the way to do it.
Don’t ask your mortgage loan officer, “How much do I need to make to qualify?” They don’t want to coach you through that.
Because if it comes back that the borrower falsified their tax returns and underwriting or the lender sees communication that looks like the loan officer prodded it on, the loan officer could lose their license.
This is meant to help you get an idea of what amount underwriting might calculate for your income if you are self-employed. If you want to know for sure, talk to a lender.
There are several ways to set up your business, but for this example, I’m going with Schedule C income, which is more of a sole proprietorship or a single-member LLC.
If you’ve been in business for fewer than five years, you’ll need to provide your two most recent years of tax returns.
If you’ve been in business for more than five years, you may be able to provide just the most recent year of tax returns. FHA requires two years.
If 2026 income is less than 2025’s, you may be under more scrutiny. Rather than taking the average (since the prior year would inflate the income), they may just use your most recent year’s taxes to determine your income.
Here’s an example:
● 2025 net profit: $90,000
● 2026 net profit: $84,000
Rather than add the two years and divide by 24 months, they could take 2026’s income and divide that by 12, landing at $7,000 per month.
Here’s another example:
● 2025 net profit: $90,000
● 2026 net profit: $100,000
They’d total it up at $190,000 and divide it by 24, landing at $7,916.67 per month.
There are specific write-offs that do count as income.
The write-off “meals and entertainment” is removed from the total income.
Business miles traveled are added back to the qualifying income based on the IRS mileage rate for the year ($0.35 per mile in 2026).
Depletion and depreciation are also added back in as income. These are paper losses on your tax return, not real cash out of pocket, so lenders add them back to better reflect your actual earning power.
Here’s a new example:
● 2025 net profit: $90,000
○ $10,000 depreciation
○ 1,000 business miles traveled
● 2026 net profit: $100,000
○ $6,000 depreciation
○ 1,000 business miles traveled
This is how each year would look:
● 2025 income (as viewed by underwriting): $100,350
○ $90,000 net profit + $10,000 in depreciation + $350 in business miles traveled
● 2026 income (as viewed by underwriting): $106,350
○ $100,000 net profit + $6,000 in depreciation + $350 in business miles traveled
And this is what the total monthly income would look like:
● 2025 income ($100,350) + 2026 income ($106,350) = $206,700 ÷ 24 = $8,612.50
Hopefully, this helps you get an idea of what your income looks like to a mortgage underwriter.
Seasonal Income
In this example, let’s say you’re a teacher and have the summers to pursue your passion as a singer on a cruise ship.
As long as you’ve been doing the cruise job for two years and it will continue into the next season, then this type of income is very easy to calculate, assuming that it’s paid out as W-2 income.
Take a two-year average.
● Year 1: $24,000
● Year 2: $28,000
You’ll add the two and divide by 24. $52,000 ÷ 24 = $2,166.67 per month.
If your year 2 is lower than year 1, then it’s possible they’ll take your final year and divide it by 12 to get the total, unless there is a reasonable explanation for the drop.
Example:
● Year 1: $28,000
● Year 2: $24,000
In this case, they might only come up with $2,000 per month.
If you have decided that the cruise life isn’t for you and it won’t continue, that income won’t be counted.
Second Jobs
Some people think that they can start a second job, grab a pay stub, and then get much more income applied toward their application.
This doesn’t work because underwriting wants to see a two-year history of you working two jobs in order to count the second job’s income.
I’m used to seeing second jobs come with varying hours. If that’s the case, then I’d use your two end-of-year pay stubs and your most recent pay stub to calculate your average.
● Year 1 pay stub: $22,000
● Year 2 pay stub: $22,500
● Mid-May pay stub: $8,437.50
$52,937.50 ÷ 28.5 = $1,857.46 per month that you’d be able to count toward your qualifying income.
If the second job is a salary position, then you’d take the salary and divide it by twelve.
Piece Rate/Paid by the Mile
I've seen underwriters get real picky with truck driver income. It can get especially difficult if they've recently switched from one structure to another, from per-mile to hourly, or vice versa.
Any change to your pay structure can reset the clock on this. The same goes for employees who are paid by piece.
What you'll need is a 12-month history minimum, and your most recent 12-month average will be your qualifying income.
Example:
● You started employment last year on May 1st.
● Today is July 31st.
● 14 total months.
Take your end-of-year pay stub total, then take your current pay stub (good through July 31st), and divide that number by 14.
Example continued:
● Last year total: $26,667
● This year’s most recent pay stub (year-to-date total): $53,333
● $80,000 ÷ 14 = $5,714.28 per month
How to Lower Your Debt-to-Income Ratio
If you’re getting declined for a loan, or not getting approved for a high enough purchase price because your debt-to-income ratio is too high, then read this chapter.
This chapter has ideas on how to get that ratio lower.
On the surface, this sounds wrong. Some might think, “If you aren’t getting approved for it, you probably shouldn’t buy it.”
But that’s a very general statement that lacks a complete understanding of the process.
It happens frequently where people will look at their budget and decide that they can afford a specific amount, but underwriting doesn’t agree.
I’ll give an example. Someone just started a business. They’ve been in the industry for a number of years and know how to make money quickly doing it. In fact, they do. They make even more money than they had made as an employee. The problem with getting approved for a mortgage is that this person doesn’t have any tax returns to prove the income.
This person has a debt-to-income ratio problem because, in underwriting’s eyes, this person doesn’t have stable income.
Or the person who has a high balance in deferred student loans. Underwriting is applying a general rule that 0.5% to 1% needs to be counted against the ratio. But underwriting has no clue if the debt will be forgiven or how long the debt will be deferred.
There are rules that underwriting makes around income and debts that can ruin someone’s ability to qualify.
Here are things you can do to improve your debt-to-income ratio.
Get a Co-Borrower
Getting a co-borrower can be your easiest path as far as underwriting goes. But it can be one of the hardest paths in terms of swallowing your pride or convincing the potential co-borrower to actually do it.
I’ll give an example of how this works.
Let’s say the primary borrower (you) has $4,000 in monthly debts. Pretend the majority of that debt happens to be in deferred student loans. Then pretend the new housing payment will be $2,000 per month, and your current income is $10,000 per month (nice round numbers).
Underwriting doesn’t like that because $6,000 in monthly debts on a $10,000 gross income is 60% DTI.
Now let’s add your co-borrower.
Your co-borrower makes $10,000 as well, pays $2,000 in rent, and has a $500 car payment.
The process to find out what the total debt-to-income ratio is involves adding up all of the debts and all of the income, then dividing them.
● $10,000 income + $10,000 co-borrower income = $20,000 income
● $4,000 student loan payments + $2,000 mortgage + $500 car payment + $2,000 rent = $8,500
● $8,500 ÷ $20,000 = 42.5% total DTI
What if the co-borrower will live in the house too? Will that rent payment still be counted against the ratio?
It wouldn’t. If that’s the case, you’d have $6,500 in total debts. I’ll show it again, rewritten:
● $4,000 student loan payments + $2,000 mortgage + $500 car payment = $6,500
● $6,500 ÷ $20,000 = 32.5% total DTI
But if the co-borrower doesn’t plan on living in the house, then that rent payment would have to be counted.
For conventional loans, anyone can co-borrow. For FHA loans, it’s a little different.
Here are a couple of rules for co-borrowers on an FHA loan:
● If the co-borrower is not a family member, then the co-borrower must be an occupant.
● Another way to phrase it: “Non-occupying, non-family co-borrowers are not allowed.”
● If the co-borrower is family, then they don’t have to occupy the home as a primary residence.
For VA loans, it’s a little different as well:
● A family member cannot take advantage of VA mortgage benefits unless it’s a spouse. Siblings can’t mooch off that $0 down benefit by having a military veteran co-borrow.
● For the full $0 down benefit, you’re limited to who can co-borrow (spouse only) unless the co-borrower is also a veteran and eligible. So, this co-borrower tactic is less effective if you’re trying to qualify for a VA loan.
If you’re considering this option and asking someone to co-borrow, you should discuss their credit situation with them first.
I’ll list out the hurdles as questions and give a quick answer.
Can the co-borrower buy a house later?
If the co-borrower can qualify with both homes on their credit, meaning they have a high enough income to cover both, then yes, this isn’t an issue.
Here’s something a lot of people don’t know: If the co-borrower has been on the mortgage for a year or longer and hasn’t needed to make a payment to keep it current, then a mortgage lender can omit that debt from their debt-to-income ratio.
Here’s a general statement about debts: If someone else has been making the payment for the last 12 months, you can exclude it from your debt-to-income ratio. The payment must be made by someone who is also obligated to pay the loan.
So, if you pay the payments on time for 12 months, it may end up not affecting your co-borrower.
This only applies to your typical mortgages. If the co-borrower tries to get an auto loan, the lender might have their own rules about debts and may still count it against them, even if they aren’t making the payment.
Would this strip the co-borrower of their first-time homebuyer status?
Yes. When you co-borrow, you’re also getting put on the title. When you’re on the title of a home, you’re an owner.
Here’s a quick word about your first-time buyer status: If you haven’t owned a home in three years, you’re considered a first-time buyer. So, your status resets after three years of not owning a home.
Would late payments affect the co-borrower’s credit score?
Yes, it would affect the co-borrower as well. Late payments, short sales, foreclosures, bankruptcies: those are all negative events that would not only affect the co-borrower’s score but also their ability to secure future lending. (Foreclosures and bankruptcies require cool-off periods before you can get another mortgage.)
When can you get the co-borrower off of the mortgage?
If your debt-to-income ratio improves enough to qualify for a refinance, then you can do so, removing the co-borrower from both the mortgage and the title of the home.
The co-borrower can’t get off the mortgage until you can secure other financing on your own or with some other co-borrower.
Keep in mind, the loan is fully rewritten. So, if rates have gone up, you must qualify with the higher interest rate. A nice bonus would be if rates dropped from the original mortgage rate.
That covers it for the co-borrower section.
Omit Some Debt
There are debts that you can take out of your debt-to-income ratio calculation. Here are the scenarios where you can remove those:
● If the debt has 9 months or less remaining on its schedule.
○ This only works on installment loans with a set term. Some people try to trick the system by paying only a portion of the debt off, thinking that it gets the debt low enough to qualify. But this typically doesn’t work. They’ll look at the original schedule and the opening date.
○ This may also apply to child support and alimony.
● If someone else has been paying the debt on time for 12 months.
○ If you’re a co-signer and the primary borrower has been paying the debt for 12+ months, you may be able to exclude this debt from your debt-to-income ratio.
○ If your company pays for a car lease, they may reimburse you for it. If that reimbursement isn’t counted as income, then they can omit the debt instead.
○ If you’re divorced and the ex-spouse is required to pay the debt according to the divorce decree, you may be able to omit that debt.
○ If the debt is paid for by a business you own and that amount was written off the income, you may also omit the debt.
● If you’ll pay it off.
○ If you have the cash to pay off the debt, then tell your loan officer that you plan on paying it off at closing. They’ll remove the debt from your debt-to-income ratio and will arrange for you to bring the cash to settlement (closing).
● Student loans on IDR plans:
○ On a Fannie Mae conventional loan, if you have your student loans on a $0 per month repayment plan, you may be able to omit the student loan from your DTI ratio.
Sell the Toy
If you have a toy that is financed, consider selling it. By selling it, you pay off the debt, improve your cash flow, and maybe even pocket some cash.
Restructure Your Debt
By restructuring your debt, you may be able to come out with a lower monthly payment obligation. Here are some ideas:
● Refinance your car
○ By refinancing your car, you may be able to drop the rate, extend it back out to 5–6 years, and, by doing so, lower your payment.
● Refinance your car with cash to consolidate
○ If your car’s value is higher than what you owe, you may be able to use that equity to pay off other debts. I would try a credit union with this approach first.
● Get a consolidation loan
○ These are typically “personal loans” or “signature loans” that have higher rates than an auto loan, but they are on installment plans. Depending on the terms, if you can pay off all your credit cards and replace all of those small minimum payments with one lower total payment, this will improve your debt-to-income ratio. One side benefit could be an increase in your credit score (lower credit utilization).
● Have someone else pay it off
○ This one is a stretch, but if you’re trying to qualify in just your name, and if you happen to have someone (I’m thinking about spouses mostly) who can take on the debt and get it out of your name, that is one way to lower your debt-to-income ratio.
This type of advice will make personal finance gurus groan. Just don’t get yourself into a bad loan by doing a restructure. Read the loan documents and be careful.
Consider a Different Loan Program
There are mortgages called “Non-QM” loans, or Non-Qualified Mortgages, that do not follow the same rules as a conventional or FHA loan.
The lender will make their own rules on how to verify income, but the tradeoff will likely be needing a larger down payment and a higher interest rate.
Here are some common Non-QM options:
● DSCR (Debt Service Coverage Ratio)
○ If you are an investor buying a rental property and don’t want to involve your own personal cash flow as part of the qualification process, this type of loan will only take into account the cash flow of the property. If the rent, or projected rent, covers the mortgage payment, you can typically get approved without reviewing your personal debt-to-income ratio.
● Bank Statement Loans
○ These loans verify your income by reviewing your business bank statement deposits rather than your annual taxes. Some lenders apply an expense factor to the deposits, like 50% (they only count 50% of the deposits as income). Others allow an expense ratio to be determined by your CPA.
○ An alternative to this could be a P&L loan. Some lenders will take on a riskier method of income verification by only reviewing a CPA-provided P&L sheet. Be careful when considering these types of loans. They may come with risky features that allow the lender to call the loan due in full at any point.
● Asset Depletion Loans
○ If you have investment accounts and a higher net worth, but do not have traditional income, then this program allows you to take your asset value, divide it by 360, and consider that as a monthly income.
If you have a 20%+ down payment, these loans may be a good option for you.
Assume a Loan
If you see that today’s current rates are relatively higher than, say, five years ago, it may be worth exploring an assumable loan.
Assumable loans allow you to capture a much lower interest rate, and in turn, you end up with a much lower payment.
The seller’s loan would transfer to your name, and you’d pick up where they left off. That means you get their lower payment, which in turn would help your debt-to-income ratio.
I’ll walk you through this here and may also address it later in the book.
If a seller has the sales price at $400,000 and owes $300,000 at a 3% rate on an FHA loan, VA loan, or USDA loan, you may be able to take over their loan and resume their payments.
Here’s the catch: you have to make up the difference between the loan amount and the sales price.
I’ll show you what I mean:
● $400,000 sales price
● $300,000 assumable loan
● $100,000 difference
If you don’t have $100,000 to make up the difference, you might be able to finance a portion.
There are some lenders that can go up to about 90% of the value and finance it as a second mortgage or home equity loan.
I’ll show you what that means too:
● $400,000 × 0.9 = $360,000
● $360,000 − $300,000 (remaining owed) = $60,000
A home equity lender might allow you to borrow up to $60,000 here.
That means you’d have to come up with $40,000.
But would it really help your debt-to-income ratio if you have two loans instead of one?
Here’s a little bit of math:
● The seller is paying about $1,422.63 for principal and interest (if the rate is 3% and the loan has 25 years left).
● If you had a home equity loan amortized over 15 years at 8% interest, the principal and interest payment would be $573.39.
● That’s $1,996.02 total principal and interest if you assume the loan and finance some of the gap.
Now let’s do a hypothetical scenario if you didn’t assume a mortgage:
● $360,000 loan amount
● 30-year term
● 6% interest rate
● That’s a $2,158.38 payment for principal and interest.
That saves you $162.36 per month.
At first, that doesn’t sound like much. But long term, it makes a HUGE difference in interest. (I’ll touch more on that in chapter 13.)
If I had 10% or more for a down payment, here’s how I’d approach assumable mortgages:
● I wouldn’t seek them out.
● Once I find a house that I like, I’d then check if the seller has an assumable mortgage by asking the title company or real estate agent to investigate. FHA case numbers may show up on trust deeds and notes, and FHA loans are assumable.
● I’d run the numbers to see if assuming the loan makes more sense than financing it on my own. If they have a 5% interest rate and I can get a 5.5% interest rate, then it may not be worth it. If they only owe $50,000 at a 3% interest rate, then I would need to take out a large loan at a higher interest rate to cover the difference. That wouldn’t make sense either.
● If the numbers do make sense, then I’d ask if the seller is open to doing an assumption. Assumptions can take several months.
That’s a unique scenario. It doesn’t happen often, but if you’ve been struggling to get approved, I at least wanted to cover every idea to help get your payments lower.
Haggle With Your Employer (Increase Your Income On Paper)
This is my last idea on how to get your debt-to-income ratio lower.
Negotiate with your employer.
See if you can get a raise. I won’t coach you through how to communicate that you’re more valuable than what you’re getting paid, but if you don’t ask, you might not get the raise.
Apart from getting a raise, you could ask for a change in your pay structure.
If you get paid in bonuses, commissions, overtime, or any other type of variable income, mortgage underwriting might not be taking your full income into consideration. They might not take into account your variable types of income if you can’t show a two-year history of receiving it.
If you were to negotiate with your employer to receive a higher guaranteed salary in exchange for bonus or commission income, underwriting would take that into account. A guaranteed salary is more stable to them than variable income.
If you can find a higher-paying salary position elsewhere, and as long as you will start within 90 days, that’s also an option to raise your income and lower your debt-to-income ratio.
Hopefully this section gave you a better understanding of what goes into an underwriting calculation of income and how you can better position yourself to qualify.
Contents
Chapter 1 How Much Can I Afford? 3
Chapter 2 How Much Cash Do I Need? 16
Chapter 3 How To Find The Down Payment 30
Chapter 4 Your Debt To Income Ratio 41
Chapter 5 Choose Your Lender 69
Chapter 6 You’ve Been Denied (Your Credit) 80
Chapter 7 Selecting a Real Estate Agent 90
Chapter 8 Shopping For a House108
Chapter 9 Under Contract: Inspections and Appraisals 121
Chapter 10 Under Contract: Rate Lock and Underwriting 129
Chapter 11 How To Lower Your Rate 144
Originally shared by u/SamTMortgageBroker in r/NewbHomebuyer — view the original thread.