Three ways to improve USDA Debt to Income Ratios!
What are three ways to improve USDA Debt to Income Ratios and also increase your sales price?
Unfortunately, many of today’s lenders do not fully understand the USDA program or how to maximize its benefits, which can leave homebuyers extremely frustrated with the amount they have been approved for.
However, in today’s short video I will discuss three ways to improve your USDA debt ratios, which in turn can increase your qualifying ability and overall sales price!
Now, before we get started, don’t forget to take advantage and download our USDA Blueprint for Success with the link below. This free guide is designed to walk you through the process step-by-step and is a great tool for both homebuyers and Realtors alike.
Three ways to improve USDA Debt to Income Ratios!
As a starting point, your total debt-to-income ratio is a percentag
e of your gross monthly income and is calculated by dividing monthly obligations by your gross monthly income.
Monthly obligations could include items such as car loans, credit cards, as well as the principal, interest, taxes, and insurance payments on the new mortgage.
Here are three ways to reduce USDA debt to income ratios in order to increase your qualifying ability:
- Installment accounts
Per USDA, “accounts that will be paid in full through a specified number of fixed payments such as auto, personal, secured/unsecured, etc. must have the monthly payment included.”
However, “if ten or less months of repayment remains per the credit report, creditor verification, etc., the monthly debt may be excluded if the payment does not exceed five percent of the monthly repayment income.”
Also, “installment debt may be paid down to ten months or less of remaining debt” in order to meet this guideline.”
- Co-signed obligations
“Co-signed debts refer to a debt where the applicant may be a co-borrower, joint obligor, co-signer, guarantor, etc.”
“Co-signed debts must be included in the monthly debts unless the applicant provides evidence another obligor (party to the debt) has successfully made the payment for the previous 12 months prior to loan application.”
In order to prove that the other party is paying the debt, “acceptable evidence includes but is not limited to: canceled checks, money order receipts and/or bank statements of the co-obligor.”
However, any “late payments reported in the previous 12 months prior to application will require the monthly liability to be included in the monthly debts.”
Additionally, debts that are listed as individual on the credit report “must be included in the debt ratio regardless of who is making the monthly payment.”
- Business Debts
Business debts that are reporting on the applicant’s personal credit report, such as an auto loan, may also be “excluded from the monthly debt if there is evidence the debt is paid through a business account.”
However, this must be proven through supporting documentation such as “canceled checks or bank statements from a business account for the previous 12 months.”
Summary
In summary, all three of the options we discussed today can help reduce USDA debt ratios while at the same time increase your qualifying ability!
Remember, just call or email to discuss your scenario and let us show you the “Metroplex” difference!
800-806-9836 Ext. 280
SeanS@MPLX.org
Let’s make it a great day, and I look forward to seeing you right here for the next tip of the week!
