Why debt to income matters in mortgages

Although it's not written in stone, most conventional loans require a debt to income of no more than 45 percent, he says, but some lenders will accept ratios as high as 50 percent if the borrower has compensating factors such as a savings account with a balance equal to six months' worth of housing expenses, he says.

"Anything over 50, you would need to have some considerable compensating factors to get approved," Hackett says. "Something like a 50 percent down payment."

FHA debt-to-income ratio

For Federal Housing Administration loans, the recommended debt-to-income limit is 31 percent on the front ratio and 43 percent for the back ratio. But with certain compensating factors, the FHA automated approval system accepts ratios as high as 46.99 for housing expenses and 56.99 for the total back ratio, Hackett says.

"I try to stay away from those," he says. "I don't see how one can make payments when 57 percent of your income is already gone. You have to remember these numbers don't take into account your utilities, cable, phone and all those other expenses."

Ways to get around a high DTI

The most obvious and easiest way to lower your debt-to-income ratio is to pay off some of your debt. But most people don't have the money to do so when they are in the process of getting a mortgage, since much of their savings often goes toward the down payment and closing costs.

If you think you can afford the mortgage you plan to get but your DTI is over the limit, a co-signer might help solve your problem.

Borrowers can have a relative co-sign their mortgages on FHA loans. Unlike in conventional loans, FHA co-signers are not required to live in the house with the borrower, but they need to show sufficient income and good credit.

Sometimes a co-signer isn't the answer, Concarchy says.

"Just because you are able to get approved doesn't mean you should get approved," he says. "If your DTI is too high, maybe it's time to take a step back and get your finances together before you commit to a mortgage."

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