Can I Qualify for a Mortgage After Declaring Bankruptcy? Yes, and Here’s How

Whenyou apply for a mortgage, your mortgage broker will do some quick math tofigure out how much of a loan you can afford. Your mortgage lender willconsider many factors, and one of the most important ones is yourdebt-to-income ratio. It is usually shortened to DTI, and understanding thisformula can help you better understand how big of a house you can afford.

AnOverview of a DTI

YourDTI represents the amount of money you spend compared to the amount you make.Your lender is going to have very strict DTI requirements when deciding whetheryou can be approved for a mortgage. The lender wants to make sure you are nottaking on a loan that you cannot afford to pay. If you cannot pay back yourmortgage, your lender ultimately loses that money. Generally, your lender willwant to see a lower DTI as they go through your application.

Front-EndDTI

Yourfront-end DTI includes all expenses related to housing. This includes yourhomeowners’ association dues, your real estate taxes, your homeowners’insurance, and your future monthly mortgage payment. In essence, this will beyour DTI after your lender gives you a potential loan. 

Back-EndDTI

Then,your lender is also going to take a look at your back-end DTI. This the firsttwo other forms of debt that could go into your DTI. A few examples include carloans, student loans, credit card debt, and personal loans. Generally, this isthe most important number because it is debt that you already carry when youapply for a mortgage. Your lender can always make adjustments to your homeloan to fix your front-end DTI, but your lender does not have any control overyour back-end DTI. 

WhatIs a Strong DTI?

Everylender will take a slightly different approach, but lenders prefer to see atotal DTI somewhere around 36 or 43 percent. If you already have this much debtwhen you apply for a mortgage, you may have a difficult time qualifying for ahome loan above 43%. On the other hand, if you don’t have a lot of debt, yourlender may qualify you for a larger home loan. 

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