Monday, June 14, 2010

Have $50,000 in Credit Card Debt? - Can You Get a Mortgage?

People are always asking us if they can get a mortgage with $30,000, $40,000, $50,000 or more in credit card debt. The short answer is that it doesn't really matter how much your total debt is. The debt-to-income ratio (DTI) used to determine whether you qualify for a loan is based on the minimum monthly payments that show on your credit report, NOT on the total balance due.

To calculate your DTI, take the minimum monthly payments that show on your credit report, add your monthly housing payment to that amount, and then divide the total by your monthly gross income (income before taxes).

If you owe $1,000 in minimum monthly payments each month, and your housing payment is going to be $1,500 per month, then your total payments each month will be $2,500. Divide that $2,500 by your monthly gross income to get your DTI. If you make $5,000 a month, your DTI would be 50%. If you make $6,000 a month, then your DTI would be 41.6%.

The total debt amount does not matter. Only the monthly payments count.

How high a DTI can you have and still qualify? That depends on your credit score and the type of loan you are getting. It is common to get loans approved in the 50%-55% range if you have very good credit (above 740).

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