100% Mortgage Financing With 55% Debt Ratios

Summary

Many lenders are offering new loans for people to help them get a mortgage.

Some lenders will now go up to a 55% debt to income ratio for borrowers.

This is much higher than the more conservative 38%-45% that many lenders have used in the past.

If you are in the market for a mortgage this type of loan may help you.

Basics

Your debt to income ratio is a basic measure that mortgage lenders use. It involves:

• Total monthly debt load
• Total pretax income
• Overall ability to pay

Total Monthly Debt Load

Your total monthly debt load that a lender will analyze includes:

• Credit cards
• Student loans
• Car payments
• Department store cards
• Other monthly debt payments
• Your mortgage payment

This is the sum total of your usual monthly debt payments.

In some cases a lender may ignore a debt totally. This is the case, for example, if you have a $500 a month car payment but there are only two more months left on the loan. The lender may choose to ignore this $500 per month debt load because they know if will go away shortly.

Lenders should be able to figure out the monthly debt balances and when they expire from your credit report, although you should also disclose relevant items to them in your mortgage application.

Lenders will also factor in the expense of the new mortgage your are applying for. This includes the mortgage payment, property taxes, home owner association dues, hazard insurance, and any other property related expenses.

Total Pretax Income

The lender will add up all your pretax income, which may include:

• Base salary
• Sales commissions
• Bonuses
• Overtime
• Rental income
• Interest income
• Other income

All of this income is added together to figure out your pretax income. They may take an average of your past year’s monthly earnings.

Temporary jobs or seasonal work may not be added into this total because it is not considered regular work or income.

Total Overall Ability To Pay

The lender will compare the borrower’s total overall monthly debt load with their monthly pretax income.

If a borrower’s pretax income is $10,000 and their monthly debt payments are $4,000 then the borrower has a debt/income ratio of 40%. This is acceptable to many lenders.

New Opportunities

Many lenders will now allow a total debt burden of as much as 55% of the borrower’s income.

This allows more people to be able to buy a property. Lenders may compensate themselves for the additional risk of this type of loan with a higher than normal interest rate.