10 Smart Strategies to Qualify for a Cash-Out Refinance with High Debt-to-Income (DTI)

To qualify for a conventional cash-out refinance, your total monthly debts—including the projected mortgage payment—generally must stay below 45% of your gross income. This threshold is known as your debt-to-income ratio (DTI). But what if your DTI is higher than that?

Here are 10 strategies that can help you still qualify for a cash-out refinance, even with a high DTI.

1. Use Cash-Out Proceeds to Eliminate Debt

One of the most effective strategies is to use part of your cash-out funds at closing to pay off high-payment debts. Prioritize paying off balances with the highest payments and lowest balances, as these offer the most immediate reduction to your monthly DTI.

For example:

• $5,000 debt with a $400/month payment → Pay off first
  
  

• $7,500 debt with a $300/month payment → Pay off second
  
  

• $18,000 debt with a $350/month payment → Pay off third
  
  

Continue paying off debts in order until your DTI reaches the lender’s acceptable range.

2. Use Personal Savings to Reduce Debt Balances

Lenders often exclude installment loans with 10 or fewer payments remaining from DTI calculations. That means you could temporarily use your savings to pay a loan down to this threshold.

Example:

• If your car loan has a $400 monthly payment and $4,000 balance, paying it down below 10 months left could eliminate the $400 from your DTI calculation.
  
  

This must be done before closing and cannot be covered by refinance proceeds. After the loan closes, you can reimburse yourself with the cash-out funds.

3. Consolidate Your Debt

Debt consolidation focuses on lowering monthly payments, which is what lenders care about for DTI—not necessarily your total balances.

Example:

• Three loans totaling $60,000 with combined payments of $1,500/month
  
  

• Consolidated into one loan with a $1,200/month payment
  
  

This $300/month reduction in debt payments could improve your DTI enough to qualify.

4. Add a Co-Borrower

Another way to lower DTI is to increase income rather than reduce debt. Adding a co-borrower—like a spouse or partner who lives in the home—can help.

Note: Lenders typically do not allow non-occupant co-borrowers for cash-out refinances. The added borrower must live in the home full-time.

5. Improve Your Credit Score

Higher credit scores often give lenders more flexibility. A DTI of 46% might be denied at a 650 score but approved at 700.

Improve your score by:

• Paying down credit card balances
  
  

• Removing any reporting errors
  
  

• Avoiding new credit inquiries before applying
  
  

A better score may unlock automated underwriting approval even with a high DTI.

6. Show More in Reserves

Reserves are assets you have in savings, checking, investment, or retirement accounts. Lenders see these as a cushion in case of financial hardship.

Fannie Mae often requires six months of mortgage reserves when your DTI exceeds 45% on a cash-out refinance. That means if your total monthly mortgage is $2,000, you'll want to show at least $12,000 in reserves.

7. Reduce Your Loan-to-Value (LTV) Ratio

Sometimes reducing your loan request slightly can make a big difference. Lenders use loan-to-value ratios in 5% increments.

Example:

• You need $300,000, and your home appraises at $395,000 → LTV = 75.9%
  
  

• Reducing your loan amount to $296,250 = 75% LTV
  
  

That small shift can place your loan into a lower-risk bracket, which may result in a lower interest rate and a more favorable DTI calculation.

8. Consider FHA Cash-Out Refinance

FHA loans tend to be more flexible with DTI limits compared to conventional loans. While conventional caps around 45%, FHA can sometimes approve up to 50% DTI or more with strong compensating factors.

Keep in mind, FHA loans require mortgage insurance, which adds to your monthly payment—but they can be a lifeline if you need access to cash and have high debt.

9. Wait for an Income Boost

Increasing your income—even slightly—can reduce your DTI ratio. Options include:

• Waiting for a raise or promotion
  
  

• Adding a second part-time job (if you’ve had it for 2+ years)
  
  

• Reporting side business income (if consistent and documented)
  
  

A higher income reduces your DTI by spreading your debt over a larger base.

10. Monitor Interest Rates for a Dip

Your DTI is directly impacted by your projected mortgage payment. So when interest rates drop, your payment drops too.

Example:

• A $300,000 loan at 7% might cost $1,996/month
  
  

• At 6.5%, the payment could drop to $1,896/month
  
  

• That $100 savings could reduce your DTI by 1-2%, potentially making all the difference
  
  

Even a modest rate improvement can open the door to approval.

Final Thoughts: Approval Is Still Possible

If you’ve been denied a cash-out refinance due to high DTI, don’t give up. Each lender has its own risk tolerance, and you may qualify with another—especially if you implement one or more of the strategies above. A little persistence, preparation, and strategic thinking can go a long way toward unlocking your home’s equity.