Debt Limitations for Mortgage Applications

Some people assume that they cannot take out a mortgage or own a home if they have major debt on their books, but this simply isn’t true. While there are limits to how much debt you can carry while getting a mortgage, and while your debt may affect your mortgage rate and certain other factors, there are absolutely allowances that allow you to purchase a home while still diligently managing other debt.

At City Creek Mortgage, we’re a mortgage company that’s here to help. Let’s look at how lenders calculate your debt in this kind of situation, and what sort of debt levels might affect the kinds of loans you can apply for.  

Types of Debt

When measuring debt levels, mortgage lenders view debt specifically in relation to your total income. In short, this is referred to as “debt-to-income” ratio, or DTI. There are actually two forms of DTI that are relevant for mortgages:

  • Front-end ratio: Only looks at income compared to housing-related costs such as mortgage payments.
  • Back-end ratio: Considers all monthly debs, including housing-related costs but also including others like credit cards, car payments, and more. This is generally the more meaningful ratio.

DTI Ratio Allowances

In most conventional loan situations, you can have somewhere between a 43 percent and a 50 percent DTI ratio. This means you can spend just under half your monthly income to cover various debts after taking on the new loan.

This remains true for the FHA loan program, though this program also has “compensation factors” that allow someone to have a DTI ratio well above 43 percent – things like great credit scores or a minimal increase in borrower housing costs might count here. In addition, Fannie Mae and Freddie Mac – two government-sponsored agencies that buy loans from lenders to help keep the market robust, both allow limits up to 50 percent in most cases.

Additional Factors

In addition, things like credit score and ability to repay are important factors in how much debt you can carry. Debt is also just one factor in whether you can get approved for a mortgage – there are several others.

To learn more about these additional factors, or for any of our mortgage services, contact the pros at City Creek Mortgage today.


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