Every so often a home buyer falls just ever so slightly on the high side of maximum allowable debt to income ratios for a Conventional loan. Whether they are 1% or 5% over, being over is being over. Standard Conventional home loans cap debt to income at 45% to 50%. Can you really be that close yet have zero options?
High Home Loan Debt to Income Solutions
Borrower’s finding they are out of scope may have several ways to lower their debt to income ratio. For example:
- Shop for a lower homeowner’s insurance quote
- Pay off existing debt.
- Put more money down
- Refinance existing debt into someone else’s name
All great options. However, sometimes borrowers do not have the funds or time to execute them.
Mortgage Insurance Blended Score Lowers Debt to Income Ratio
Borrower’s putting less than 20% down is required to pay mortgage insurance. Consumers have several mortgage insurance company’s to choose from when financing a home. One mortgage insurance company offers a very innovative approach to determining premiums. Normally, mortgage insurance premiums are derived in part from a borrower’s credit score. In fact, its essentially the same approach lenders take to determine interest rates. Higher credit scores result in lower mortgage insurance costs and vice versa.
However, one mortgage company looks at credit from a different perspective. Rather than using the lowest middle credit score among all borrowers on a loan, this company uses the average of both consumer’s middle scores. Unlike other MI companies, they then base an applicants mortgage insurance premium of their blended score.
Although subtle, the difference between the lower score and the blended score methods may be enough. For example, if one borrower has a 620 mid score while the other has a 740 mid score, mortgage insurance based on a blended 680 score is materially less than insurance based on a 620 score.
Could be all you need to make it work!
By Jeremy House