Introduction to Income to Debt Ratio for Richmond, VA Loan Pre-Approvals
For you to be pre-approved to buy a home in Richmond, VA or anywhere in the U.S., your debt-to-income (DTI) ratio must fall within a certain range. This is one of the many requirements home loan borrowers must meet. To get you started, you need to understand the meaning of debt-to-income ratio.
Definition: Debt-To-Income Ratio
The DTI ratio is simply a measure of a borrower’s monthly debt against their monthly income. The DTI ratio can also be defined as the percentage of a person’s gross monthly income that goes to pay debts. The DTI ratio is meant to assess if a borrower can afford to take on the loan in question. If you have too much debt already, your ability to take on new debt is significantly limited. There are two types of DTI ratios namely the front end and back end DTI ratios.
- Front-end DTI Ratio: This ratio focuses on housing expenses i.e. the proposed monthly mortgage payment including principal, interest, real estate taxes, home owner’s insurance, and mortgage insurance (if applicable) (PITI) divided by the gross monthly income.
- Back-end DTI Ratio: This ratio focuses on major monthly debt i.e. the proposed monthly mortgage payment (PITI) plus other monthly debt expenses divided by the gross monthly income. The back-end DTI ratio factors in expenses such as; credit card payments, car loan/s payments, child support/alimony payments, etc.
Gross income (for both ratios) includes child support/alimony payments as well as the average bonus, overtime, or commissions received over the last two year period.
Debt-To-Income Ratio for Richmond, VA Loan Pre-Approvals
The standard acceptable DTI ratio in Richmond, VA is 29% and 43% for the front end and back end ratios respectively. This simply means your debt should not exceed 29% (front end) and 43% (back end) if you want your home loan pre-approved.
However, it is possible to qualify for a home loan in Richmond, VA if you have higher ratios depending on factors such as your cash reserves, credit scores, and type of loan.
VA Loan Debt-To-Income Ratio Requirements/Conditions
Veterans looking for home loans, should have a debt-to-income ratio that doesn’t exceed 41%. Veterans are allowed a slightly higher debt-to-income ratio because their home loans (VA Loans) are guaranteed by the U.S. Department of Veteran Affairs. Again, it is possible to qualify for a home loan with a higher DTI ratio if you have appropriate compensating factors that offset this risk.
What If Your DTI Ratio Is Higher Than the Acceptable Limit?
If you have a high DTI ratio, you can lower your loan amount (i.e. purchase a less expensive home or increase the amount of down payment) to lower your DTI ratio. You can also repay some of your debts. It’s important to note that a higher debt load will translate to a higher DTI ratio. You can also find someone to co-sign your loan (i.e. add more income) or wait for a few months until you have repaid some of your debts.
The above information summarizes the basics of the debt-to-income ratio for Richmond, VA loan pre-approvals. It is recommendable for you to speak to a Richmond, VA home loan expert if you are not sure about calculating your Richmond DTI ratio. A home loan expert like me will help you save precious time and effort. I have unmatched experience in all kinds of home loans including FHA, USDA, VHDA, VA, and Conventional loans. CALL me and let me help you get your home loan pre-approved fast and easy.