Loans for high debt to income ratio borrowers

There are certain criteria that every lender looks at when determining your eligibility for a financial product. One of these is your debt to income ratio, also known as DTI. Along with your credit score, your debt to income ratio helps the financial institutions reviewing your loan applications determine the risk level involved in lending you money. 

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A higher DTI tells lenders that you already have a lot of debt on your plate. 

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This can make it more challenging to secure the best loans for high debt to income ratio individuals. However, challenging does not mean impossible – you can still get access to funds with a high DTI. 

Debt to income ratio: A brief overview

Let’s take a step back and define what a debt to income ratio actually is, and why it’s so important to lenders. 

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In brief, your DTI is the percentage of your gross monthly income that is dedicated to servicing your debt obligations. To calculate your DTI, simply add up the monthly payments on your existing debts, and divide by your monthly pre-tax income. Make sure to include both your steady payments, such as your mortgage or student loans, and revolving debt, such as your credit card balances. 

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The lower your DTI, the better your chances of qualifying for a loan. This is because lenders are concerned that borrowers with a high DTI may be taking on more debt than they can afford to pay each month. Borrowers with good credit and a low debt to income ratio can qualify for a broader range of financial products with the best possible rates. 

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Typically, secured loans, such as mortgages or home equity loans, have a maximum DTI of 43%. Personal loans generally have a lower threshold of 36%. However, these numbers will vary depending on your lender. 

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Expert tip: For credit card payments, you only need to include the minimum monthly payment when calculating your DTI – even if you’re making higher payments every month. 

Loans for high debt to income ratio individuals

There are two broad categories of loans – secured and unsecured. Whether a loan is secured impacts all aspects of the loan terms, from credit requirements, to DTI, to interest rate. 

Unsecured loans

An unsecured loan is a loan that is not tied to any kind of asset. Because the lender has no asset to repossess if you default on the obligation, rates for these kinds of loans tend to be more expensive, especially if you have bad credit. 

Personal loans

With a personal loan, borrowers get a lump sum of cash, which is repaid with a monthly payment. Personal loans for high debt to income ratio borrowers can be hard to come by, but some lenders may be willing to work with you. In addition to interest, personal loans come with an origination fee, which will vary lender by lender. 

• DTI requirements – 36% or less.
• Credit score – Varies by lender, generally 610 or 640 minimum. You’ll need a higher score to get the best rates. 
• Rates & repayment terms – Loan term of 1-7 years, higher rates than a secured loan. 
• Funding timeline – Fast funding, often as quick as 2-5 business days. 
• Special considerations – If you have a banking relationship with an institution, such as a local credit union, they may be more likely to provide personal loans for high debt to income ratio applications. 

Debt consolidation loans

A debt consolidation loan is a special type of personal loan meant for paying off debts. By consolidating debts into one monthly payment, hopefully with a lower interest rate, you can expedite and simplify debt repayment. Functionally, these loans are no different from a regular personal loan – meaning that getting approved for a debt consolidation loan with high debt to income can still be challenging.

• DTI requirements – 36% or less, though some lenders may go up to 43%.
• Credit score – Varies by lender, generally 580-640 at minimum. 
• Rates & repayment terms – Loan term of 1-7 years, rates can be as high as 24.5% for applicants with poor credit. 
• Funding timeline – Fast funding, often as quick as 2-5 business days. 
• Special considerations – Debt consolidation for high debt to income ratio borrowers can be an important step towards improved financial health, but make sure you explore all your debt-relief options, including debt settlement and debt management plans. 

Balance transfer credit cards

A balance transfer credit card lets you move an existing credit card balance to a new card for a one-time, 3-5% transfer fee. In exchange, you’ll receive a promotional period during which you can pay down your debt with 0% interest – often 12-24 months. 

• DTI requirements – No firm standardized limit, but a rough estimation of your DTI is part of the application process and determines your maximum credit limit. 
• Credit score – 670 or higher
• Rates & repayment terms – 2-4 years with promotional rate. After that, your rate will be much higher, 18-28%. 
• Funding timeline – 10-21 days 
• Special considerations – Be sure that you can repay your debts during the promotional period, before the expensive credit card rates kick in. 

Peer-to-peer lending

A peer-to-peer loan is a loan extended to one individual by another individual – through an online lending platform rather than a traditional financial institution. This is a newer loan type, with a few different platforms offering these opportunities for both prospective lenders and borrowers. 

• DTI requirements – Vary greatly depending on the platform, with many providers falling in the 20-34% range. 
• Credit score – 600 or higher
• Rates & repayment terms – 2-5 years, rates vary depending on credit score, current rates range from 7-35%. 
• Funding timeline – Quick, ranging from 1-5 days.
• Special considerations – P2P platforms will also charge an origination fee, among other fees, which can vary by lender. Make sure to do your research and have a thorough understanding of what the entire cost of the loan will be before you proceed.

Secured loans

A secured loan is a loan that is backed with an asset that the lender can repossess in the event that the borrower defaults on the obligation. Because of the added security for the lender, DTI requirements can sometimes be less stringent than those for unsecured loans – but this varies depending on loan product. 

Home equity loan/home equity line of credit

Homeowners can access their home equity through a variety of different financial products. The most well-known of these are home equity lines of credit (HELOCs) and home equity loans. Because these financing options are backed by your home, rates are more competitive, and DTI requirements are looser than those for an unsecured loan. However, this also means that you can lose your home if you default on the loan. 

• DTI requirements – 43% 
• Credit score – 620 or higher, with better rates for homeowners with excellent credit.   
• Rates & repayment terms – Competitive rates with a fixed term for home equity loans and a variable rate for HELOCs. Terms range from 5-30 years depending on product and lender. 
• Funding timeline – Because the underwriting process often requires an appraisal, these kinds of loans may take longer, up to 30 days to fund. 
• Special considerations – Home equity loans and HELOCs will typically come with similar charges to a mortgage loan, including origination fees and closing costs. You’ll need plenty of equity to be considered. Check sizes are much larger for loans backed by your home, ranging from $20,000 to $400,000 depending on your credit profile and home value. 

Cash-out refinance

A cash-out refinance replaces your existing mortgage with a larger one, enabling you to take the leftover proceeds out to use for whatever purposes you see fit.

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Homeowners keep one streamlined monthly payment. One crucial consideration is making sure you can afford your new monthly payment, which may be larger, as falling behind can cause you to lose your home. 

• DTI requirements – 45%, but some lenders may go higher if you have 6 months of reserves in the bank.  
• Credit score – 620, with better rates for homeowners with better credit.   
• Rates & repayment terms – Competitive rates based on current fed rate, 10-30 year term options available. 
• Funding timeline – A slower timeline of 30-60 days. 
• Special considerations – Since a cash-out refinance replaces your entire mortgage, the closing costs tend to be more expensive. Additionally, if your current rate is lower than your new rate, you could pay much more over the life of your refinanced loan. 

Home equity investment 

A home equity investment is a type of home equity financing that provides homeowners with a lump sum in exchange for a share of their home’s future appreciation. Home equity investments do not come with a monthly payment – instead, they are repaid with a balloon payment at the end of the term or when you sell your home. 

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Because HEI providers are looking at your home more deeply than your own credit profile, HEIs can be a great alternative option for homeowners seeking loans for high debt to income ratio. 

• DTI requirements – No DTI or income requirements
• Credit score – Varies by provider, with some top companies going as low as 500 
• Rates & repayment terms – 10 or 30 years. Repayment cost is based on home appreciation and not interest rate. 
• Funding timeline – Like other home equity products, the funding timeline is slower – generally around 30 days. 
• Special considerations – You’ll need plenty of home equity to qualify, and also to be in an eligible location and property type. Manufactured homes are generally ineligible, as are homes in rural areas. Like other home equity products, HEIs come with origination fees and closing costs. Check sizes are large, ranging from $20,000 to $500,000. 

Car title loans

A car title loan is a short-term loan where the title of your car serves as the collateral for the loan – meaning that your lender can repossess your car if you cannot pay back the loan. These loans generally come with a high interest rate, but more lenient financial requirements. 

• DTI requirements – Often not considered 
• Credit score – Often not considered 
• Rates & repayment terms –Short term of 15-30 days, with additional charges for rollover into an additional month. Financing charges are astronomical as the advertised interest rates of 20-25% are not annualized. True APR can be as high as 300%.  
• Funding timeline – Quick, often same day
• Special considerations – While car title loans can be a quick way to get cash for distressed borrowers, the extremely short-term and astronomical rates should make this an option of last resort. The funding amount also generally caps out at 50% of your car’s value, meaning that if you are looking for a larger check, this product will be a poor fit. 

Tips to improve your chances

If you are looking to improve your chances of qualifying for any kind of loan, consider these tips: 

• Increase your income – Increasing your income will lower your debt to income ratio, making it possible for you to qualify for a greater variety of financial products. 
• Boost your credit score – A high credit score raises your odds of qualifying for any type of loan, even with a higher DTI. 
• Pay off some of your debt first – If your DTI is preventing you from qualifying for loans, take a few months to focus on debt payoff before you reapply. 
• Avoid taking on new debt – Keep your credit usage low while you are working to apply for a new loan, and make sure to avoid major expenses or new credit cards. 
• Apply with a cosigner – If you have a trusted friend or family member with excellent credit and DTI willing to cosign your loan, this can improve your chances of qualifying. However, if you default on the loan, your loved one will be responsible, which can damage both their credit and your relationship. 

Final thoughts

While having a higher DTI can make it more difficult to qualify for financing tools, you still have options for meeting your financial goals. If you are a homeowner seeking a consolidation loan with high debt to income, Point’s Home Equity Investment may be the best fit for your needs. An HEI empowers you to tap into up to $500k of your home equity with no income or DTI requirements. Prequalify today to see how much of your home equity you can unlock.