Debt-income ratio too high for loan approval

23 Replies

Hello everyone,

I recently got in touch with a mortgage broker so he could run my numbers and tell me what I could afford to purchase. He came back and told me that my debt-income ratio is already at 58% WITHOUT considering a home loan, so I have no chance of getting approved without a cosigner which isnt an option for me. I have $100,000 in (mainly private) student loans which is exactly what is killing me. I'm still enrolled in school so my loans are "deferred" until I graduate and my naive self hadnt realized the benefit paying on them while enrolled until now. 

What is my next step here towards being able to start investing? I have money saved up that I was intending to put towards a down payment...that I'm now sitting on. But isnt a big enough contribution to lower my loans enough to get my own place. 

Can I invest a portion in a deal with others? How do I find those? Are they legitimate?

Are there other options/other loans? What resources do I have in this situation? 

I'm a single mother living at my parents so moving out is a high priority for me. 

Thank you in advance for any resources or information you share below. 

@Rachel Murphy

Are you looking for a primary residence or for an investment property? 

You need to talk not just to one lender. Go to your local banks and credit unions. I'm sure some of them would be able to work with you. We have a local CU that won't take in consideration your DTI ratio at all for investment properties. All they need is a property with a rent roll that will cover all expenses and leave you some cash after. And they go up to 80% LTV.

Other option is to partner up with another investor. And use your money for downpayment and his credit for the loan. Or just have a part of the deal with your money. There is plenty of options. You just need to find the right one that fits you.

Hope this helps 

Listen ,Do not be discouraged  real estate has many options and many ways to break into the market . Tell me How much is your savings for a down payment 

Originally posted by @Yuriy Skripnichenko :

@Rachel Murphy

Are you looking for a primary residence or for an investment property? 

You need to talk not just to one lender. Go to your local banks and credit unions. I'm sure some of them would be able to work with you. We have a local CU that won't take in consideration your DTI ratio at all for investment properties. All they need is a property with a rent roll that will cover all expenses and leave you some cash after. And they go up to 80% LTV.

Other option is to partner up with another investor. And use your money for downpayment and his credit for the loan. Or just have a part of the deal with your money. There is plenty of options. You just need to find the right one that fits you.

Hope this helps 

 I wish we had CUs in Miami like this.... wow that's great.

Originally posted by @Yuriy Skripnichenko :

@Rachel Murphy

Are you looking for a primary residence or for an investment property? 

You need to talk not just to one lender. Go to your local banks and credit unions. I'm sure some of them would be able to work with you. We have a local CU that won't take in consideration your DTI ratio at all for investment properties. All they need is a property with a rent roll that will cover all expenses and leave you some cash after. And they go up to 80% LTV.

Other option is to partner up with another investor. And use your money for downpayment and his credit for the loan. Or just have a part of the deal with your money. There is plenty of options. You just need to find the right one that fits you.

Hope this helps 

Thank you for taking the time to respond! I'm looking for an investment property. A duplex that I can live in one side and rent out the other to pay the mortgage. My personal credit union that I use doesn't do mortgages, but I can definitely go to other ones. 

How would I go about finding another investor like that? Or finding a deal to jump in on? Is there some type of site or forum where people are looking for partners and whatnot? 

3 possible solutions:

1. Put your student loan on the longest possible repayment period to lower your DTI (temporarily). After you purchase the property, change it back (if you wish).

2. Credit union

3. pay off other smaller debts (Car, CC, Etc.) to lower DTI

Originally posted by @Caleb Heimsoth :

Rachel Murphy are you working part time or full time since you’re a student? Anyways to refinance the student debt? What interest rate are those at?

Hey there! I'm working full time. I go to school part time right now. Can I refinance my loans if I'm still enrolled? Rates are between 7.625% and 12% interest. Multiple loans between $10,000 and $17,000. 

Originally posted by @Derrick Dill :

3 possible solutions:

1. Put your student loan on the longest possible repayment period to lower your DTI (temporarily). After you purchase the property, change it back (if you wish).

2. Credit union

3. pay off other smaller debts (Car, CC, Etc.) to lower DTI

 I'm not even on a payment plan for it yet because I am still in school. They are in "in-school deferment" right now. 

I don't have any other debt besides my student loans that I couldn't pay off right now (very small debts) but he said since my loans are so much paying off my credit cards wouldn't be enough. 

Commercial/porfolio lender will consider the property/asset more than your personal DTI.

I'm not sure if you living in one side as your primary residence would change that though.

Go to all the small local banks and credit unions in your area and talk to a commercial MLO.

@Rachel Murphy wow those are some high rates..that’s probablt half the battle right there.  

My girlfriend has student debt and her highest rate is 4.5 percent.  Some of her loans are zero percent interest.  Those are run by trusts and non profits.  She has 7 year repayment plan once she’s done with school on those.  

Originally posted by @Rachel Murphy :
Originally posted by @Caleb Heimsoth:

Rachel Murphy are you working part time or full time since you’re a student? Anyways to refinance the student debt? What interest rate are those at?

Hey there! I'm working full time. I go to school part time right now. Can I refinance my loans if I'm still enrolled? Rates are between 7.625% and 12% interest. Multiple loans between $10,000 and $17,000. 

Had a feeling this would be Problem #1 when reading the first post. Those rates are insane. Need to Sofi down those loans ASAP. Paying those loans down is a better "investment" than purchasing property at those rates.

Second, and probably most important of all, are you in a major that's actually worth doing? Does your chosen major directly translate into money/job you like? If it does, great. If it does not, and it's just an expensive degree - it's something worth re-evaluating.

Once you figure these two things out, everything else will sort itself out pretty easily within the next 1-2 years. Otherwise, you're actually taking the path of most resistance and making this process significantly more challenging than it would be.

Originally posted by @Aaron Hunt :
Originally posted by @Rachel Murphy:
Originally posted by @Caleb Heimsoth:

Rachel Murphy are you working part time or full time since you’re a student? Anyways to refinance the student debt? What interest rate are those at?

Hey there! I'm working full time. I go to school part time right now. Can I refinance my loans if I'm still enrolled? Rates are between 7.625% and 12% interest. Multiple loans between $10,000 and $17,000. 

Had a feeling this would be Problem #1 when reading the first post. Those rates are insane. Need to Sofi down those loans ASAP. Paying those loans down is a better "investment" than purchasing property at those rates.

Second, and probably most important of all, are you in a major that's actually worth doing? Does your chosen major directly translate into money/job you like? If it does, great. If it does not, and it's just an expensive degree - it's something worth re-evaluating.

Once you figure these two things out, everything else will sort itself out pretty easily within the next 1-2 years. Otherwise, you're actually taking the path of most resistance and making this process significantly more challenging than it would be.

 Thank you for your response and honesty! The rates are insane for sure. What does Sofi mean? My issue is they are Sallie Mae loans so they're private and from what I've read can only be consolidated when I graduate. 

Previously, I was paying out of state tuition for 3 years which is why they are so high. Now, I'm enrolled in online courses so the tuition is much less. My major is criminal justice so to answer your question, it absolutely does not translate into money or a job I like. I have thought about changing my major but would lose tons of credits and would thus have to be enrolled longer. I only have 3 core classes and 6 electives left to take before I graduate, and have this coming years tuition covered by grants/scholarships. 

I realize I'm probably making it more difficult on myself by trying to force something when maybe it isn't the right time, but without getting too personal, my home life sucks and I really need/want to move out as soon as possible. I just also don't want to set myself up for failure. 

Find properties where you can do a land contract aka seller financing.
Basically the property owner / seller is the bank
You put down 10-30% he holds the note till it’s paid and you pay 6- 7% for the remaining balance over x amount years . A real estate lawyer can draw this up and is recorded just like a mortgage

Originally posted by @Rachel Murphy :
Originally posted by @Aaron Hunt:
Originally posted by @Rachel Murphy:
Originally posted by @Caleb Heimsoth:

Rachel Murphy are you working part time or full time since you’re a student? Anyways to refinance the student debt? What interest rate are those at?

Hey there! I'm working full time. I go to school part time right now. Can I refinance my loans if I'm still enrolled? Rates are between 7.625% and 12% interest. Multiple loans between $10,000 and $17,000. 

Had a feeling this would be Problem #1 when reading the first post. Those rates are insane. Need to Sofi down those loans ASAP. Paying those loans down is a better "investment" than purchasing property at those rates.

Second, and probably most important of all, are you in a major that's actually worth doing? Does your chosen major directly translate into money/job you like? If it does, great. If it does not, and it's just an expensive degree - it's something worth re-evaluating.

Once you figure these two things out, everything else will sort itself out pretty easily within the next 1-2 years. Otherwise, you're actually taking the path of most resistance and making this process significantly more challenging than it would be.

 Thank you for your response and honesty! The rates are insane for sure. What does Sofi mean? My issue is they are Sallie Mae loans so they're private and from what I've read can only be consolidated when I graduate. 

Previously, I was paying out of state tuition for 3 years which is why they are so high. Now, I'm enrolled in online courses so the tuition is much less. My major is criminal justice so to answer your question, it absolutely does not translate into money or a job I like. I have thought about changing my major but would lose tons of credits and would thus have to be enrolled longer. I only have 3 core classes and 6 electives left to take before I graduate, and have this coming years tuition covered by grants/scholarships. 

I realize I'm probably making it more difficult on myself by trying to force something when maybe it isn't the right time, but without getting too personal, my home life sucks and I really need/want to move out as soon as possible. I just also don't want to set myself up for failure. 

https://www.sofi.com/

Bingo! I had a gut feeling you might not be in a major/field you were truly interested in.

That’s great the next year is covered though. Might as well get it done then.

Your best bet is to refi your loans down, graduate, pickup a job that requires your major (so it’s hopefully secure, and you and your kid(s) can still live life okay), then proceed to spend your extra time finding work that you truly enjoy (the earlier the better). Whether that’s RE or something else!

I was in similar shoes, I was in engineering as a major, switched tracks completely cause it was not at all what I wanted to do. Went into medicine instead, and I started to invest in real estate while still in training, cause its fun.

I would use your downpayment to pay off your credit cards and stop using them. Create a budget and live within your means. I would focus on paying off all debts except for the deferred loans and cash flow the remainder of your education. Once you graduate pay down the private loans as quickly as possible. Then I would work on buying a duplex. You can’t afford a duplex with all of your debts.

If your home life is miserable find the cheapest rental that you can and move out. It will slow down your debt repayment but it could be worth it if you are miserable there. Buying is too risky with your debts and that is why the bank will not consider you.

Just so you know you can pay your loans while in school, many of the repayment options have 0 dollar payments. If you are planning on going into public service and are currently at a state university you can apply those zero dollar payments towards public loan forgiveness. Just a thought to chew on. :)

Seller financing is an awesome tool and I have a vacant lot using seller financing right now.  It is on a lake and the couple was going through a divorce. SoFi is a private student loan refi company. If you have any federal loans put them on a 30 year payback and some of the private companies have a 20 year payback. @Brandon Turner has a great book about low and no money down so take a look at that. Also, listen to their Podcasts about funding a deal with low/no money. They go over Hard Money and Private Money.  

Originally posted by @Heidi Kenefick :

Just so you know you can pay your loans while in school, many of the repayment options have 0 dollar payments. If you are planning on going into public service and are currently at a state university you can apply those zero dollar payments towards public loan forgiveness. Just a thought to chew on. :)

 Thanks for your response!! I've heard of public loan forgiveness but also heard that its only for federal loans. Is that correct ? What type of jobs does "public service" include in this context?

Public loans are only for federal loans that is correct, and you must have them at the fed loan servicing. Any other collector such as Nelnet or Fannie may won’t count, so you have to transfer them to fed loan serving. Not hard to do just takes a couple of phone calls.

Public loan forgiveness is after you make 120 on time payments. So 10 years, but zero dollar payments count towards it.

Jobs that count are anything where you are working for a non-profit. You can have just about ANY job so long as it is in the non profit sector. Police, doctors, nurses, teachers have their own special loan forgiveness after 5 years, social workers, public defenders.... basically anyone that is doing something good for their community. Not to say that the private sector doesn’t do good, but if you go into the private sector you can negotiate that they pay off your loans for you when you sign your first job contract.

It’s been around since 2008, and had I known about it back then my loans would have been forgiven already!

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