If your debt levels make it challenging to meet the 28/36 rule for mortgage eligibility, there are strategies you can employ to improve your financial profile. Here are some effective approaches to help you qualify for a conforming mortgage even with existing debt.
Consider paying off smaller debts like car loans or credit card balances. For instance, if you have $2,000 left on a car loan, clearing that debt can eliminate monthly payments, improving your debt-to-income ratio. Another option is to refinance existing loans for lower monthly payments, but always be sure to understand the refinancing terms fully.
Increasing income can help offset your debt level. This could involve negotiating a raise at your current job or taking on part-time or freelance work. For example, a side job that adds an extra $500 to your monthly income can significantly improve your loan eligibility.
A strong credit score can compensate for higher debt levels. Ensure all bills are paid on time and check your credit reports for errors. Disputing and correcting any inaccuracies can enhance your credit score. For example, correcting a mistakenly reported late payment can have a positive impact on your score.
Saving for a larger down payment can also strengthen your mortgage application. If the minimum down payment for your chosen mortgage type is 5%, aim for 10% or more. This not only improves your loan-to-value ratio but also demonstrates financial discipline to lenders.
While mortgage rates remain low, it's a great opportunity to focus on these strategies, whether that's improving your credit score, saving for a larger down payment, or working towards passing the 28/36 rule. Remember, each step you take brings you closer to achieving your dream of homeownership.