One of the most important metrics that determines what you qualify for when you apply for a mortgage is your debt-to-income (DTI) ratio. This is a ratio that compares your gross income to your monthly recurring debts. How can you improve your debt-to-income ratio before you apply for a home loan? Below are a few simple recommendations.

1. Pay off debts if you can. The first and most obvious way you can improve your DTI ratio is by getting rid of some of your existing debts. Whether or not this is an option depends on your financial circumstances. But even if you can pay down a small amount of debt, it can make a difference. Keep in mind that you do not necessarily need to pay a debt off in full; even if you reduce the balance, that may allow you to make lower monthly payments on that debt in the future. That would improve your ratio.
2. Consolidate loans or refinance them. Part of what adds to your monthly debts is the interest you have to pay. So, if you can lower your interest on some or all of your debts, that can have a positive impact on your DTI ratio. You can try requesting that your lenders reduce your interest; it probably won’t work in most situations, but it doesn’t hurt to ask. Another option is to consolidate your debts. By doing so, you combine them and have just one interest rate (hopefully a low one). That means you are not paying as much on interest every month, which reduces your DTI ratio. Finally, if that is not a solution, you could see if you can refinance any of your high-interest debts to lower interest rates.
3. Try not to take on additional debt. During all of this, do your best not to add more to your debt. That may mean putting off purchases that you are excited to make, like buying new furniture for your next home.
4. Increase your income. While we have focused on what you can do to tackle the debt aspect of your DTI ratio, the other thing you can do is try to boost your income. This can be tough, because you may not always have options or alternatives. But you might be able to work some overtime or take on some gig work, depending on your situation. Even if you cannot make a large change through any individual method above on its own, making small changes in multiple areas may help you more than you think with improving your DTI ratio.

Get Recommendations for How to Improve Your Borrower Qualifications

As you read through the ideas above, hopefully you came up with some ways you can improve your own DTI ratio before submitting your mortgage application. But if you are still not sure what steps to take, we can help you out by offering you personalized tips and advice.

Please give us a call at (248) 788-0800 to schedule your consultation. We can help you buy a home in Michigan or 15 other states.

When you buy a new home, you may need to make a down payment. This is a percentage of the home’s purchase price that you pay upfront.

You probably have a lot of questions about down payments and how they work. In this two-part series, we are answering some of those questions. Be sure to check out Part 1 if you have not already. Then, read on in this post to discover the answers to a few more frequently asked questions about down payments.

Common Questions Regarding Down Payments

Q: Do I really need a 20% down payment?

A: You may or may not need to put 20% down to buy a home, depending on your financial scenario and the type of mortgage for which you are applying.

There are multiple mortgage products that allow for down payments lower than 20% with suitable qualifications.

Q: What is the lowest down payment for a home?

A: The lowest down payment for a home is actually zero down payment. But to qualify to buy a home with no down payment, you must be eligible for a mortgage program that features zero down. Examples include VA mortgages and USDA mortgages.

VA mortgage are available to qualifying veterans, active-duty service members and eligible surviving spouses. USDA loans are income-based, and may be an option to homebuyers who are purchasing homes in rural areas.

Q: What if I cannot afford a down payment?

A: This scenario is more common than you might realize. But you might still be able to purchase a home without waiting. If you cannot afford a down payment, the first option is to see if you qualify for a type of mortgage that features no down payment.

Another possibility is to apply for down payment assistance. We can help connect you to down payment assistance programs in your location. Down payment assistance in combination with a mortgage type that features a low down payment might also work.

Buy a Home with an Affordable Down Payment

If you read both parts in this series, you should be much better informed about down payments than you were before.

Should you have additional questions about down payments with respect to your individual borrower scenario, those are questions we can address during your consultation.

Whatever your situation, we will work hard to help you purchase a home affordably. Please call MMS Mortgage Services at (248) 788-0800. We can help you with home purchase or refinance in Michigan or 15 other states.

Many of the questions we receive from homebuyers concern down payments. This is not a surprise; knowing you need to pay a chunk of money upfront to buy a home may seem daunting. But the world of down payments is one with a lot more flexibility and affordability than many prospective homebuyers realize. In this two-part series, we will be answering some pressing questions you may have about down payments.

Downpayment FAQ’s

Q: How much of a down payment do I need?

A: The most pressing question you probably have about down payments is how large a down payment you personally need to make to buy a home.

The answer to that question depends on a variety of factors, such as:

• Your credit score
• Your debt-to-income (DTI) ratio
• Your income and assets
• Your veteran status
• Where you are purchasing a home
• What type of mortgage you are applying for

One borrower might need 20%. Another might need 10%. Still another might need 3.5%, and so on. During your consultation, we can help you determine the down payment amount you will need.

Q: What are the pros and cons of large vs. small down payments?

A: Even if you can make a small down payment, that does not always mean it is the best option for your financial scenario. Making large and small down payments both have pros and cons.

If you make a large down payment, that will reduce the liquidity of your finances, tying up more money in your home. But on the flip side, if you put down enough, it may get you out of paying for mortgage insurance. You also will be closer to paying off your home loan, which can reduce the interest you will pay over the lifetime of your loan. Plus, your rate may be lower thanks to the larger down payment.

Q: Can I use gift money for my down payment?

A: Yes, in fact, it is very common to use gift money for a down payment. It is important to document where the money came from carefully to ensure that you are allowed to use it for this purpose.

Get Answers to All Your Down Payment Questions

You now have answers to some questions you may have had about down payments. But you probably still have additional questions. During your consultation, we can answer all of your questions about down payments in-depth. To begin, please contact MMS Mortgage Services at (248) 788- 0800. We can help you buy a home or refinance in Michigan or 15 other states.