suburban-tan-home I explained what debt ratios are and how they work in a recent blog.

    But, I did not explain what borrowers can do to lower them.

    Here are a few ideas for lowering debt ratios and qualifying for a larger purchase:

    1. Put less money down, and use down payment funds to pay off consumer debt. Mortgage debt has lower payments than consumer debt b/c mortgage debt is spread out over 30 years.

    2. Find a non-occupant or occupant co-signer or co-borrower. Both FHA and Conventional lenders allow for non-occupant co-borrowers.

    3. Get a 7/1 Adjustable Rate Mortgage instead of a 30 year fixed rate loan. 7/1 ARMs usually have lower rates than 30 year loans, allowing borrowers to qualify for more.

    4. Buy down the interest rate by paying points. This is as not as effective as many people think. Buying the rate down 1/4% on a $400,000 may only reduce a payment by $60 per month.

    5. Pay down consumer installment debt (like an auto loan) to 10 months remaining. Most lenders will not include installment payments in debt ratios if 10 or fewer payments remain.

    6. Garner gift funds to either increase a down payment or to pay off debts, as discussed above.

    7. Gross up non-taxable income like Social Security income and Child Support. This is something all seasoned loan officers should know but most borrowers do not; we can “gross up” non-taxable income by 125% for qualifying purposes.

    Jay Voorhees at (925) 855-4491
    Real Estate Broker, CA Bureau of Real Estate, BRE# 01524255, NMLS# 335646

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