How to Reduce Your DTI Ratio When Buying a NYC Co-op

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How to Reduce Your DTI Ratio When Buying a NYC Co-op

Lower Your Interest Rate

If your DTI is marginally higher than what a co-op requires, you may be able to lower your Debt-to-Income ratio simply by finding a lender who offers a more competitive interest rate. In the example below, reducing the interest rate from 3.75% to 3.60% has a large enough effect on the monthly mortgage payment to reduce the applicant’s DTI below the 25% threshold.

Effect of a Lower Mortgage Interest Rate on Co-op Debt-to-Income-Ratio

Change Loan Products

Switching from a 30-year fixed mortgage to a 7/1 Adjustable Rate Mortgage (ARM) or similar product with a lower interest rate will reduce your DTI by reducing your monthly mortgage payment. Here is an example of how a ARM will reduce an applicant’s DTI compared to a traditional, 30 year fixed mortgage:

Effect of an Adjustable Rate Mortgage (ARM) vs. Conventional Mortgage on Co-op Debt-to-Income Ratio

Receive an Income Stipend

Another workaround for a high Debt-to-Income Ratio when buying a co-op in NYC is to receive a recurring monthly gift, also known as an income stipend. This is a less common method since the majority of co-ops will not consider such a stipend as part of the applicant’s income, and the ones that do will likely require the applicant to demonstrate a multi-month or multi-year history of having received this income stipend.

Consider a Co-Purchase or Guarantor

Another way to reduce your Debt-to-Income Ratio when purchasing a co-op is to apply with a guarantor or to co-purchase the unit with a family member. Both options will allow you to leverage the income of the other applicant in order to meet the co-op’s Debt-to-Income ratio requirement.

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