Getting approved for a high debt to income ratio mortgage can call for a little extra attention, but it’s not impossible. In fact, there are multiple mortgage options available if you are in a unique debt to income ratio circumstance. 

Today we cover everything you need to know about getting approved for a high debt to income ratio mortgage.

What is a high debt to income ratio mortgage?

A high debt to income (DTI) ratio is any mortgage scenario that exceeds 50% DTI.

Example:

If your monthly liabilities on your credit (including the mortgage with taxes/insurance) are $2,600/month

And your monthly income is $5,000/month

You take 2600 / 5000 = .52 or 52% 

Conventional loans require you to be 50% or below debt to income ratio. So let’s look at what options we have.

Can you get approved for a high debt to income ratio mortgage?

In short, yes, it’s possible in many cases. 

Everyone’s scenario is unique and different. Luckily there are multiple ways of going about this. 

Keep in mind most scenarios show the debt to income ratio as “high” because there are other income sources that aren’t eligible, or because there are other household members that have income to contribute but don’t have eligible credit – so they can’t be added to the loan.

Here are the 4 loan options available to consider if you have a high DTI

• FHA Mortgage
• VA Mortgage
• CDFI Mortgage
• Asset Based Mortgage

Let’s take a look at each option in depth. 

FHA Loan – High Debt to Income Ratio Mortgage

An FHA loan is probably the most popular option to go with if you have high DTI.

This is because FHA loans have 

• the most flexibility when it comes to credit score
• good interest rates
• low down payment requirements

It’s important to be aware of the FHA county loan limits in your area, which you can check here. 

You do not have to be a first time home buyer to be eligible for FHA financing. 

Here are some of the requirements you can expect when getting an FHA loan:

• As high as 57% debt to income ratio (pending desktop underwriting findings)
• Home purchase with as low as 3.5% down payment
• Up to 80% loan to value ratio on a cash out refinance
• As low as 500 credit score allowed
• Primary residence only

Keep in mind, even though FHA allows it, many lenders have internal overlays that have additional restrictions, which makes it important to work with a lender that doesn’t have any overlays. 

VA Loan – High Debt to Income Ratio Mortgage

If you’re an eligible veteran, a VA loan is definitely the option to consider. 

Also, thank you for your service to our country. 

VA actually doesn’t state their max DTI. 

We have seen approvals as high as 60% debt to income ratio. To go that high it really depends on the strength of credit profile and loan to value ratio.

For some reason many veterans think you can only use your VA loan benefit once, and that is not the case. You can use the VA loan as many times as you’d like, as long as you have available entitlement. Check entitlement here. 

Here are some of the requirements you can expect when getting a VA loan:

• As low as 0% down payment on home purchase (with 580+ credit)
• Cash out refinance up to 100% loan to value ratio
• Free and clear properties are not eligible for cash out refinance
• Primary residence only

There are also residual income requirements that need to be met on a VA that your lender will need to evaluate while you’re in process.

CDFI Loan | Alternative to a High Debt to Income Ratio Mortgage

This one is a bit unique because there is actually no debt to income ratio calculated. 

The loan is approved based on credit and reserves.

For that reason, individuals with unusual income or employment circumstances might find a CDFI loan to be a great solution to accomplish their home ownership goals.  

A CDFI loan is a loan made by a Community Development Financial Institution (CDFI). 

CDFIs are private financial institutions that are certified by the U.S. Department of the Treasury to provide financial products and services to underserved markets and populations.

CDFIs use their lending and investment activities to promote community development and economic growth in these underserved areas.

Here is what to keep in mind with a CDFI loan:

• Approval is based on credit and reserves
• As low as 640 credit allowed on purchase and refinance
• As low as 20% down on home purchase (with 740 credit and 12 months reserves)
• Up to 80% loan to value ratio debt consolidation refinance 
• Up to 70% loan to value ratio on a cash out refinance
• Available on primary and 2nd homes
• Not available in all states

Important note: when doing a cash out refinance, the cash out proceeds can be used to cover the reserve requirement. 

Learn more about how to get these no income verification loans here.

Asset Based Mortgage | Alternative to a High DTI Mortgage

Here is another way to get approved based on assets and credit, not income. 

If you’re able to show you have 125% of the outstanding mortgage balance in reserves, an asset based mortgage may be the direction you’d want to consider. 

Example:

Let’s say you’re borrowing a mortgage of 150K, and you have 187,500 in eligible liquid assets that you’re not liquidating for the transaction, you meet the reserves requirement on an asset based mortgage. 

Here is what you can expect on an asset based mortgage:

• Can use up to 60% of retirement funds to cover reserves if not at retirement age (so if you have 100K in your IRA, you can use 60K in the eligible reserve asset calculation)
• As low as 20% down payment on home purchase with 700 credit
• Up to 75% loan to value ratio on cash out refinance
• Not available in all states
• Available on primary residence, 2nd home, and investment property

When does a high debt to income ratio mortgage make sense?

As mentioned earlier, usually a loan is showing high DTI because there are other income sources or other household members that are not being factored into the loan. 

However, there is one common scenario where a high DTI loan can be sensible, which is when consolidating debt or doing a cash out refinance

By using the home equity to merge high interest debt, you can pay off your debts rather than just making minimum payments. 

These types of debt consolidation loans have led borrowers to decrease their DTI from the 60s or 70s, down to the 50s. 

Even though the debt to income ratio is still “high”, the overall household monthly budget can improve by hundreds of dollars each month. 

Bonus Tip – How to Expedite Your Closing 

When you’re preparing to purchase or refinance your home, do yourself a huge favor by getting your docs in order. 

Start a folder on your computer or smartphone just for the transaction. 
Gather up your supporting income docs, assets, ID, and insurance information. 
Take legible pictures and convert them to PDFs when you put them into the folder. 
There are many apps available to convert pictures to PDFs. 
Have everything organized and labeled so you’re ready to go. 

Borrowers who are organized, and who provide legible documents always close faster.

In Summary

Getting approved for a high debt to income ratio mortgage is possible in many scenarios.

It’s very important to work with a lender that is highly experienced with these types of loans.

The best solutions for high DTI mortgage scenarios are:

• FHA Loan
• VA Loan
• CDFI Loan
• Asset Based Mortgage

Find out which option would work for you scenario.

I invite you to reach out.

Get your questions answered. 

We have been able to help many borrowers all over the country get approved when other lenders said it wasn’t possible. 

Reach out to see if we can accomplish your goals. And if for some reason we can’t, we’ll absolutely do our very best to point you in the right direction to set you up for success.