Your debt-to-income ratio (DTI) is an important part of how mortgage lenders evaluate your financial health. DTI ratios represent how much debt you have compared to your income.
It’s important to know your DTI as you consider buying a home. If you have a high amount of debt compared to income, consider `lowering your debt before applying for a loan. Even if you’re prepared to apply for a loan, you may struggle to find a lender willing to work with a high DTI.
Let’s look at DTI, how it works and how it impacts your mortgage application so you can prepare to start shopping for homes.
Getting a mortgage when you have a high debt-to-income (DTI) ratio can be challenging, but it is possible under certain circumstances A DTI of 55% is considered quite high by most lenders’ standards However, some special mortgage programs may allow you to qualify with this level of DTI.
What is DTI and Why Does it Matter for Mortgages?
DTI measures how much of your gross monthly income goes towards paying debts It’s calculated by adding up your monthly debt payments and dividing that total by your gross monthly income
Lenders look at DTI to assess whether you can reasonably afford the mortgage payment along with your other financial obligations. The higher your DTI, the harder it is to get approved because you have less income available to cover the mortgage payment.
Typical DTI Limits for Conventional Mortgages
For a conventional mortgage, lenders generally prefer your DTI to be 43% or less. Once you get over 45%, approval becomes more difficult unless you have strong compensating factors like a high credit score, large down payment, or significant cash reserves.
A DTI of 55% is well above what most conventional lenders allow. You’d be stretching your finances very thin trying to manage a mortgage payment on top of that much existing debt.
When a 55% DTI Mortgage May Be Possible
While exceedingly hard to obtain, there are some cases where you may be able to qualify for a mortgage with a 55% DTI:
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FHA loans – The Federal Housing Administration insures loans for higher DTI borrowers. They allow total DTI up to 57% if you have a credit score of at least 580.
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VA loans – These zero-down payment mortgages for veterans don’t have a strict DTI limit. Some lenders will approve VA loans with DTIs around 55% to 60%.
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USDA loans – For low-income borrowers in rural areas, USDA-backed mortgages permit DTI ratios up to 55% with compensating factors.
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Non-QM lenders – Specialty lenders offer non-qualified mortgages outside of standard underwriting. Some may approve DTIs up to 55%, often at higher rates or fees.
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Portfolio lenders – Banks who keep and service loans in-house can create their own qualifying guidelines. A few portfolio lenders may permit 55% DTIs case-by-case.
In each scenario above, you’ll need a strong application to offset the high DTI. Expect to provide substantial assets, a high credit score, and solid income documentation. Rates and fees will likely be higher as well.
Tips for Getting a Mortgage with a High DTI
If your DTI is around 55%, take these steps to improve your chances at mortgage approval:
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Pay down debts – Reducing balances on credit cards and loans can quickly lower your DTI. Pay off smaller debts first.
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Increase income – Boosting your earnings makes it easier to absorb a mortgage payment at a high DTI. Consider getting a side job or freelance work.
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Save for a larger down payment – Putting more money down reduces the amount you need to borrow. This lowers your monthly mortgage payment and DTI.
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Enlist a co-signer – Adding a co-signer with better credit and lower DTI can help you qualify and get better rates.
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Improve your credit – Lenders want to see strong credit at higher DTIs. Shoot for a score of 720 or better. Pay all bills on time.
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Explore down payment assistance – Grants can cover some or all of your down payment, making high DTI mortgages more feasible.
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Work with a mortgage broker – An experienced broker will know which lenders are more DTI-friendly and can help tailor your loan application.
Weigh Your Options Carefully
While possible to obtain, a mortgage with a 55% DTI will be very restrictive. You’ll have little wiggle room in your budget for financial emergencies that pop up. And if you lose your income source, you could quickly fall behind on payments.
Before committing to such a high-DTI loan, think carefully about whether it aligns with your financial situation and goals. In many cases, waiting to improve your DTI before applying for a mortgage leads to better long-term outcomes. But with the right planning and discipline, a 55% DTI mortgage can be a viable stepping stone to homeownership.
How quickly can I improve my DTI?
The fastest way to improve your DTI ratio is by paying down your debt. The more aggressively you pay it down, the more you’ll improve your ratio and chances of mortgage approval. You can also improve your DTI by growing your income with a side hustle or negotiating a raise at work.
Divide your monthly payments by your gross monthly income
Your gross monthly income is the total pretax income you earn each month. If another borrower is applying with you, you should factor in their income and debts, too.
Once you’ve determined the total gross monthly income for everyone on the loan, divide the total of minimum monthly payments by the gross monthly income.
High Debt to Income Ratio Mortgage | Top 4 Options
FAQ
Is 55 a good debt-to-income ratio?
50% or more: Take Action – You may have limited funds to save or spend. With more than half your income going toward debt payments, you may not have much money left to save, spend, or handle unforeseen expenses. With this DTI ratio, lenders may limit your borrowing options.
What is the maximum DTI for a mortgage?
Debt-to-Income Ratio Guidelines
Most lenders like a DTI ratio of not more than 35% or 36%. 1 Sometimes, mortgage lenders will still approve your loan if your DTI is up to 45% (or 50% for an FHA loan). 2 Your DTI ratio is too high if it exceeds your lender’s max DTI ratio, making you ineligible for the loan.
Can I get an FHA loan with 50% DTI?
FHA loans typically allow a DTI of up to 57%, though some lenders may set their limits closer to 40%.
Can I get a mortgage if I’m 55?
You can sometimes take out a normal mortgage with a higher age limit to purchase a new property or just remortgage. Most lenders require that a borrower pays off their mortgage before they reach 75, although there are some lenders with higher age limits that offer mortgages up to 80, 85 and 90.