Your DTI Is High and It Will Be Alright
You might have been lured into reading this blog post under the false assumption that I'd be discussing the controversial subject of financing cannabis-related businesses and property. Well, you can let that notion go up in smoke. Instead, we're going to talk about the ways you can get a great jumbo mortgage in California if your debt-to-income ratio (also known as "DTI") is higher than Jeff Spicoli at 4:20pm. OK, dude, not really, but we are going to address the ways you can get a decent home loan with a very competitive rate if your DTI exceeds 43% --- the maximum amount specified for a qualified mortgage, or "QM." Let's get together and review a little background first.
Your debt-to-income ratio is determined by dividing your gross monthly income into your housing debt (we use the total monthly housing payment or "PITI") to determine the "front end" or "housing" ratio, and then we use gross income divided into your total obligations for your "back end" or "total" DTI. Remember to let us do the calculations to precision, but certainly feel free to use these examples as a guide. Let's say our borrower earns $10,000 gross per month and will have a housing payment of $3000. This would produce a 30% housing ratio. Now let's also say that this borrower has $1000 per month in other expenses (auto payments, student loans, credit card minimum payments, etc.). Our $4000 in total monthly debts, once combined with the housing payment, produces a total DTI of 40% ($4000 / $10,000 = .40).
Conforming, FHA and VA loans have a temporary exemption in the eyes of our regulators. These types of mortgages can have a debt to income ratio that exceeds 43% and STILL be considered a qualified mortgage. But once the loan amount exceeds conforming loan limits (and sometimes even where it doesn't), we now have a "jumbo" loan and we are held to the letter of the law. This means that the DTI ratio cannot exceed 43%. If it does, we have a "non-QM" loan. With the non-QM status, the lender incurs additional risk. Where the lender incurs additional risk, the borrower typically pays in interest rate. In short, more risk, more rate. But not all lenders address the risk piece identically and quite frankly, many of the largest jumbo lenders won't go above 43% at all. We're different in two ways:
- We have competitively-priced mortgage options --- on the jumbo side --- that allow a DTI of 49.99%. Another of our options will permit a 47% debt-to-income. How about interest-only loans? We have them too, and they allow a 45% DTI (using their formula for qualifying payment, which is not the interest-only payment). Sometimes our strategy will involve using a home equity line of credit (HELOC) to bring the debt ratio in line. There too, 45%. Indeed, sometimes our wide credit box allows us to solve the issue just by way of a niche loan program.
- We often view the income and debt calculation more favorably than Lender B, or we bring in income from other sources, such as asset utilization. In these cases, we keep the debt ratio under 43%, but we do so in a manner that again thinks outside of the QM box, though it often prices equivalent to a QM mortgage.
So if you're looking for a jumbo mortgage in California and the usual banking suspects are telling you that you don't qualify because your DTI is high, then I'm telling you to get up, stand up and connect with me today. Let's review your scenario free of cost and obligation and get you back into approval status for the home you love and the loan you need.
I shot the sheriff,
Robert J. Spinosa
Executive Loan Advisor
Cell/Text: 415-367-5959 Fax: 415-366-1590
1058 Redwood Highway, Frontage Road, Mill Valley, CA 94941
EVERETT FINANCIAL, INC. D/B/A SUPREME LENDING (NMLS ID #2129)