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Debt ratios have a limit

Debt ratios have a limit. I wanted to talk a little bit about debt ratios. A lot of people don’t realize that there is a limit to debt ratios and and a hard limit.

A hard limit

If you’re dealing with a mortgage program where, let’s say, the the debt ratio is 45%. If you’re at 45.01%, I know that seems like it doesn’t matter. But you better find a way to get it under 45%. Can you pay off an installment loan? Is there some income we’re missing? Are there bonuses that we didn’t document? Maybe you need a slightly bigger downpayment. Anything to get that loan where the debt ratio is down at 45.00% or under. If the debt ratio is 43%, it’s 43%. It’s not 43.01.%

What to do if you are at or near your limits

So you know if your if your lender says you’re bumping up against the limits of your debt ratio, you want to be really careful. If you’re buying at the top end of your range, know that there could be some things that could throw you over. And you might have to react to that, and find a slightly bigger down payment, pay off a debt. Or find some income that maybe nobody knew about that you’re you’re earning that should be documented.

Talk to your mortgage lender

So keep in mind if you’re near the limits on your debt ratios, to have that discussion with your loan officer. And make sure you don’t get yourself in trouble because once you get under contract, you’ve written a contract for somebody’s home. And if you spent just a little bit more and didn’t have a conversation with your lender. Or maybe rates have popped up, and that pushed your debt ratios just a little bit over the edge. Have a discussion with your lender. If you’re on the the bubble with your debt ratios make sure you’re okay before you sign off on a contract to buy a home. That’s the moral of the story. Always double-check. Thanks.

Contact me to discuss your debt ratios, mortgage rates, or other mortgage questions. Click here to schedule a call or you can email me directly.