Did you know that, according to the Federal Bank of St. Louis, the average U.S. household in 2023 spent roughly 9.58% of its disposable income on debt repayment?
Effectively helping your clients manage their debt-to-income (DTI) ratios can improve their chances of getting favorable loan terms.
Let’s discuss the debt-to-income ratio, why it matters, and how LendSure calculates it vs. Fannie Mae.
Why is the Debt-to-Income Ratio Important?
A lower DTI ratio suggests that a borrower has a manageable debt level relative to their income, which can positively impact their loan eligibility and interest rates. On the flip side, a high DTI ratio may indicate that a borrower is overleveraged, increasing the risk for lenders.
Therefore, maintaining a healthy DTI ratio is essential for borrowers seeking favorable loan terms.
How is DTI calculated? By taking the total monthly debt payments and dividing them by the gross monthly income.
Key DTI Stat to Know:
A debt-to-income ratio under 36% makes mortgage approval easier, while a ratio above 43-50% indicates that debt levels are too high compared to income.
Fannie Mae vs LendSure DTI Calculation: Example Scenario
Gene and Emma are a pair of savvy investors on a mission to expand their property portfolio.
They’ve set their sights on a promising new investment, priced at a cool $440,000. They’re ready to put down $123,200, aiming for a loan of $316,800. With impressive FICO scores of 790 and 777, respectively, they’re all set to make this property their eighth investment.
Gene and Emma own a portfolio that includes one owner-occupied property and seven investment properties, all totaling a whopping $3.2 million in value. However, between all these properties, they’re facing a net rental income loss of $2,348.33 using the Schedule E Method, and $1,196.30 using the Net Rental Method.
Now, here’s where things get interesting.
Fannie Mae adds this monthly net rental loss to Gene and Emma’s total monthly debt. But at LendSure, we do things differently. We subtract the monthly net rental loss from the borrower’s total income.
The result? A lower Debt-to-Income (DTI) ratio, leads to a more attractive interest rate.
Let’s look at Gene and Emma’s scenario:
Their combined salaries amount to $13,257.00. Fannie Mae’s calculation includes the rental loss, but the total income remains the same. However, with LendSure’s method, the total income drops to $9,712.37 as we subtract the rental loss.
When it comes to debt payments, Fannie Mae adds the rental loss to the monthly debt, resulting in a total of $6,448.63. But at LendSure, our calculation leaves the total debt at just $2,904.00.
The outcome? A DTI ratio of 48% with Fannie Mae but a ratio of 30% with LendSure. That means a lower DTI and better rates. Watch a similar loan scenario play out here.
At LendSure, we understand the unique needs and challenges of property investors. That’s why we offer innovative solutions and common-sense underwriting designed to provide them with more options, great rates, and smooth funding experiences.
Our offerings include:
- Purchase, Cash-Out, and Rate & Term Refinance options available
- Full Doc, Bank Statement, DSCR (Investor Cash Flow) Loan, and Fix and Flip Loans options available
- Foreign National Loans
- Loan amounts up to $1,500,000
- No limit on the number of properties owned, can finance up to 10 properties for 1 investor.
The LendSure Way
It’s simple. We make loans that make sense. We’re not in-the-box lenders. Of course, there are numbers ratios, and data to consider, but we know that behind every file, there’s an individual with a unique circumstance seeking a loan. We work hard to offer our common-sense take on lending to borrowers seeking funding for the home of their dreams, another addition to their investment property portfolio, or refinancing of a currently-owned property.
Are you ready to benefit from a commonsense approach to lending? Contact us today to learn more about non-QM loans and how partnering with LendSure Mortgage Corp. can help grow your bottom line.
