Question about Debt-to-Income Ratio (PMI, loan, property tax, approved)

[SmartGXL]

Hello,

I am considering purchasing a townhouse in Dallas, TX this spring, and I currently have a D/I Ratio of 48.85. All other things being considered, will this high of a D/I disqualify me from getting a mortgage?

I have a down payment (10%), but, including those funds, my debt to asset ratio is still a little low (93 cents of assets for every dollar of debt).

Beyond those 2 ratios, I have decent credit, and I otherwise easily qualify for the mortgage based on income (mortage is not more than 3 times my annual salary).

Any thoughts or advice? Should I just keep renting for another year?

[ShanetheMortgageMan]

Debt to asset ratio isn't of grave concern to lenders. Yes your debt is listed, and yes your assets are listed... but even with someone who has 500x the amount of debt as assets, it isn't looked at in a negative way by underwriting.

A 48% debt ratio can qualify, as long as you exhibit compensating factors such as a good credit score, good down payment, and liquid assets available after closing (referred to as "reserves"). 48% debt ratio probably won't qualify for conventional financing with less than 20% down, as 2nd mortgages/PMI usually requires no more than 45% debt ratio, but it'd certainly be possible with FHA financing.

[VictorBurek]

I agree with Shane, FHA financing is probably going to be your best option.

[SmartMoney]

I am considering purchasing a townhouse in Dallas, TX this spring, and I currently have a D/I Ratio of 48.85. All other things being considered, will this high of a D/I disqualify me from getting a mortgage?

Depends. Did you do the calculation or did a lender do it? What rate was used to determine ratios? Was mortgage insurance included in the calculation? If the rate used was too low and no mortgage insurance added in, that 48% could easily become a 52%+ and then, no, you would not qualifiy. Even with compensating factors, some investors will not cross over 50%, even with an FHA loan. (Fannie, used when buying conventional, has pretty much said 45% is their max, but will default to their automated underwriting......but even then very, very few will be approved over 45%).

But to say you do or don't qualify on an internet forum (without specifics) is nuts. The composition of your debt plays a huge role, and it can make or break those ratios. You say your mortgage is not more than 3 x your annual pay, which tells me you have significant debt in proportion to your income. At current rates, my observation is most qualify for 4x your income, unless debt is skewed. It may very well be more beneficial for you to just put 3.5% down and take the other money to put towards debt payoff.

Whatever you decide to do, don't make a decision based on vague internet advice.

[SmartGXL]

Thanks everyone for your advice.

SmartMoney - I agree with not using internet advice to make decisions, and I know no one can tell me if I would be approved or not - but I wanted to check to see if there was a hard number or benchmark that is used industry-wide as a cutoff for getting a mortgage, in regards to debt levels. It appears that I am right on the edge. I do not have any solid credit card balances - I pay those off in full every month, but I have $16,000 left on my auto note, $11,000 on one student loan and $15,000 on another, which is in forbearance (my employer is sending me to school, so I pay tuition, part of that tuition is paid for by my employer, but the other part I finance with student loan debt). So, I have roughly $40k in debt, and this is on a salary of roughly $86k.

The home I am interested in has an asking price of $205,000. I may have to let this one go and wait another year and try again in 2012.

Thanks for everyone's help!

[piyf]

So long as you included property taxes for Texas in that ratio and not just principal and interest.

Just a word of advice having owned 2 homes in Texas (sold them). Find a place with lower property taxes and NO MUD. I don't know about Dallas but around houston they can be as high as 4%.

I make almost as much as you but I have a wife that makes almost as much as me but looking to spend no more than 120k on my 3rd home. I'll be making about 35k more a year (household income) than what I paid for on my house. I'm done with 30 yr loans and being house poor.