If you’re a first-time homebuyer and qualifying for a home loan presents an uphill battle, a high debt-to-income (DTI) ratio may be to blame. As luck would have it, we can help you level the playing field with our Mortgage Credit Certificate (MCC) program. This secret weapon has helped many a Nevada homeowner get that coveted “approved” stamp on their loan app by lowering the DTI ratio, and it can help you, too.
Brent Hart, a loan originator with Prime Lending in Reno, will share how it works in a moment, but first, a little background info.
What Is Debt-To-Income Ratio Anyway?
As the Consumer Financial Protection Bureau so clearly puts it, “Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income.” If you’ve started the loan process, you know that your DTI ratio number is important because it helps lenders determine your ability to repay the money you borrow. Typically, the highest DTI ratio accepted for a home loan is between 43-45 percent.
Want to get a good idea of what your DTI is before you even start the loan application process? Good idea. Experts recommend that you know this number just like you know your credit score. Start by adding up one month’s worth of bills, and also your gross income (pre-tax). Then plug those numbers into this handy debt-to-income calculator to get your percentage. For accuracy, be sure to add in all expenses and income (including often forgotten items like child support and tips.)
MCC, DTI & You
And now, without further ado, we give you Brent Hart, a HIP-qualified lender with Prime Lending, talking about how the Mortgage Credit Certificate can lower your debt-to-income ratio (not to mention make you a happy camper every tax season for the life of your loan.)
“The MCC program is a nice program. It can help borrowers that are on the fence for qualifying for their home loan. The grant programs available through the State of Nevada require a maximum of 45 percent debt-to-income ratio. Borrowers that are over 45 percent won’t qualify but can use the MCC tax credit program to help them qualify.
“In most cases, a credit of $166.67 can be applied towards their monthly mortgage payment, which will have the effect of lowering their payment enough to bring their debt-to-income ratio below 45 percent. Essentially, it provides a $2,000 tax credit when they file their taxes each year. This lowers their tax liability accordingly and therefore increases the tax refund they receive back from the IRS. They can also adjust their W-4 withholdings to allow for more monthly disposable income rather than waiting for the tax refund when they file their tax returns. Of course, I recommend they consult a tax expert.”
Brent was kind enough to share a story about a current client, who will get a nice boost from MCC, lowering his DTI ratio.
“I have a client right now that is a single young man, one income. He went into contract on a home with a monthly HOA fee that pushed his payment to the edge of his comfort zone and he thought about backing out of the purchase. Once I explained the benefits of the MCC program and how he’ll receive $2,000 more back each year on his tax return, offsetting his payment he was comfortable moving forward with the purchase.” Good for you, young man!
If you’re a first-time homebuyer, a qualified veteran or someone who has not owned a home in more than three years, apply for our MCC program may very well be one of the smartest things you do all year-- and you'll be reminded of your greatness every year at tax time.To get started, .