I am trying to consolidate my debt by getting a consolidation loan(2nd mortgage), this will cut my bills in half but they say currently my DTI ratio is too high and they can't do it. I know it's too high that's why I'm trying to consolidate, if i'm not late on bills now why won't they approve me???
Typically, there are several considerations when getting a loan - three of the most important are: i) your loan-to-value; ii) your debt-to-income ratio; and iii) your credit rating.
I will review each one in turn, focusing on your specific situation.
1. Loan to value: This is calculation looking at how much you want to borrow, relative to the value of the home. It is directly impacted by the amount of money that you can put down on your new home. The larger the down payment, relative to the value of the home, the less risk the lender has to take in extending to you a loan.
2. Debt to Income: This ratio looks at your monthly debt obligations (payments of interest and principal) as a percentage of your monthly income. If you have a significant amount of debt, your debt service burden may be too high for a lender to comfortably give you a loan. You need to either increase your income, or cut your debts.
3. Credit Rating: Your loan, including terms like interest rate and points, will depend on your credit worthiness. One measure of credit quality is a credit score (sometimes a specific 'FICO' score). Your credit rating is calculated based on several variables, including: your payment history (do you have any late payments, charge-offs, etc.), the amount and type of debt that you owe, if you have maxed out any of your trade lines, and then several other secondary factors like the length of your credit history and how many recent inquiries have been made to look at your credit history. If you have a good credit score, you will get a better loan.
I hope that his helps you make the right decision for your particular situation, but be sure to shop around and find a loan that meets your needs.