Buying a house is the biggest purchase of most people’s lives. Unfortunately, the result of something so huge comes with a draining and tedious approval process. Getting a mortgage involves a lot of steps and, at times, some complicated maneuvers to get approved. One of the most common reasons for not getting approved is having a bad debt-to-income (DTI) ratio, however, that may soon be changing.
What is a debt-to-income ratio?
Your debt-to-income ratio is how much money you make versus how much debt you have. The maximum has standardly been at 45%, meaning your amount of debt per month cannot exceed your monthly income by more than 45%.
Freddie Mac and Fannie Mae are now looking to raise that number to 50%, which will open the door for almost 95,000 new mortgage approvals a year.
Why are the DTI limits changing?
Studies have shown that due to high loans and low starting salaries, more of the younger generation is living at home and not purchasing homes. By bumping up the DTI they are hoping to attract younger buyers.
After the 2008 mortgage crisis, many banks went into panic mode which meant stricter rules. Many professionals feel that by slightly loosening up these restrictions it will make the mortgage process more manageable.
The biggest issue with the new standards is finding a lender who will approve the loan with a 50% DTI. While the new figures are used as guidelines, lenders can still deny loans based on additional factors.
If debt is preventing you from buying a home, however, you are within the new guidelines, try checking out nonbank lenders as they may have more leniency when it comes to DTI. Regardless, it is most important to ensure that you can afford your mortgage along with housing expenses and current debt before moving forward.