The most important factor in getting a home loan may not be what you think. Most people think credit score is the most important, and YES, it is important, but even with a great credit score there is one thing that can prevent you from getting a loan. Debt to income ratio. The DTI is what tells underwriters that you can afford the monthly payments. This ratio shows what percentage of your monthly income is used to pay monthly debts. If the percentage is to high (43% is the max for most loans) underwriters will deny the loan. This is not a judgment call by underwriters, they really have no choice. Since most loans are packaged and resold the DTI must fall within Fannie Mae and Freddie Mac requirements.
Keep in mind it’s not enough to have the income, you must be able to prove it via w2’s or tax documents. For self-employed people this can pose a big problem since business owners often take advantage of writing off business expenses to show less income on tax returns. So when considering applying for a home loan (new or refinance) be sure to make an assessment of your own income and projected debts and make sure you fall within the DTI guidelines. Oh, and keep that credit score up as well.
