Most buyers sit down with a lender and wait to be told what they qualify for. But what lenders know, and what buyers rarely think to ask, can make a real difference in what you can borrow, what you actually pay at closing, and whether you walk into this process set up to win or scrambling to catch up.
I sat down with Vincent Newsome, home loan advisor at National Mortgage Funding in Troy, Michigan, for our fourth conversation together. This one covers four things that come up constantly in real buyer situations here in Metro Detroit: how debt to income ratio actually works, what the loan process looks like for self-employed buyers and 1099 contractors, how seller concessions can save you money in today’s market, and the exact steps to take right now if you want to be ready to buy in the next 12 months.
Whether you are buying your first home or your fourth, there is something in this conversation worth knowing.
Watch the Full Interview
Prefer to read? The full breakdown is below.
What Is a Debt to Income Ratio — and Why Does It Matter More Than Your Pre-Approval Number?
The number a lender is willing to approve you for and the number you should actually borrow are not always the same thing. This is one of the most important distinctions in the entire home buying process, and it starts with understanding your debt to income ratio, commonly called DTI.
Your DTI is simply your total monthly debt divided by your gross monthly income. That percentage determines which loan programs you qualify for and how much a lender will offer you.
Vincent walked through the math clearly. If you earn $100,000 per year, you are bringing in roughly $8,300 per month. If your required monthly debt payments total $4,000 — and that includes the minimum required payment, not just what you typically pay — your DTI is around 50 percent.
For conventional loans, lenders generally want to keep your DTI at 50 percent or below. Government-backed loan programs like VA and FHA do allow higher ratios, typically up to 56 percent, and VA loans can go slightly above that depending on other qualifying factors.
But here is where it gets important: qualifying at 56 percent DTI and being comfortable at 56 percent DTI are two different conversations.
As Vincent put it during our conversation: “What I can qualify you for and what you’re comfortable paying are two different scenarios, and that’s something we’re going to discuss together when we go through your application.”
That is the right approach, and it is exactly what separates a good lender from a great one. Getting pre-approved for a number that stretches you to the edge of your budget every month is not a win. Understanding your true comfort zone before you start shopping is.
If you want to understand how your monthly payment is affected by today’s rate environment before you even talk to a lender, my post on how mortgage rates impact home affordability in Metro Detroit breaks that down in detail.
Self-Employed and 1099 Buyers: How the Loan Qualification Process Works Differently
This is the buyer profile that surprises people the most. Business owners, independent contractors, commissioned salespeople, and anyone who owns more than 25 percent of a business — even if they issue themselves a W-2 — are treated as self-employed by lenders. And the documentation requirements look very different.
Here is what Vincent says lenders need to see:
Two years of tax returns is the standard. Whether you file as a sole proprietor on a Schedule C, an S Corp, a C Corp, or a partnership, lenders need two years of federal returns. If you have a business entity, they need your personal returns and your business returns.
The five-year rule for conventional loans. If you have owned your business or had your Schedule C open for more than five years, conventional loan programs may allow lenders to use only your most recent year of returns instead of averaging the two years together. This matters because if your income was significantly higher last year than the year before, using only last year’s figure works in your favor.
VA and FHA do not follow the five-year rule. Those programs still require a full two-year self-employment history, regardless of how long the business has been operating.
Your write-offs can work against you on paper. This is the one that catches self-employed buyers off guard most often. Your tax return shows your net income after deductions, not your gross revenue. If you have been aggressively writing off business expenses, your taxable income may look much lower than your actual cash flow. A good lender knows how to read past the bottom line and add back allowable items to calculate a more accurate qualifying income.
Owning more than 25 percent of a business means you are self-employed, even with a W-2. Vincent made this point clearly. If you have an S Corp and pay yourself a salary, you still qualify as self-employed in the eyes of the lender once your ownership stake exceeds 25 percent. Your personal returns and your business returns are both required.
The bottom line for self-employed buyers: get in front of a lender before you start seriously shopping. Not after you fall in love with a house. The income calculation for non-traditional earners takes more time and more documentation. Knowing where you stand early gives you the ability to make adjustments if needed.
This is also one of the reasons I encourage buyers of all income types to take the first conversation seriously. If you are wondering whether now is the right time to start that process, my guide on whether to buy a home now or wait may help you think through the timing.
Seller Concessions in Metro Detroit: What They Are and How to Use Them
Seller concessions are one of the most underused tools available to home buyers right now, and Vincent brought this topic up because he is seeing it come up constantly in current Metro Detroit transactions — both on the initial purchase agreement and during post-inspection negotiations.
Here is how it works.
When a seller agrees to concessions, they are directing a portion of their sale proceeds back to the buyer to cover closing costs, escrow, and other allowable expenses. If you are buying a $250,000 home and the seller agrees to $5,000 in concessions, the seller walks away with $245,000. You, as the buyer, get $5,000 applied toward your costs at closing.
The amount of seller concessions you can receive depends on your loan type and how much you put down.
Conventional loans:
- 3 percent down: maximum seller concessions of 3 percent of the purchase price
- 10 percent down: maximum seller concessions of 6 percent
- 25 percent down: maximum seller concessions of 9 percent
FHA loans: Up to 6 percent in seller concessions, regardless of down payment amount. Important note: with FHA, concessions can only cover closing costs, not the down payment itself. Your down payment must still come from your own funds.
VA loans: Up to 4 percent in seller concessions, regardless of down payment.
Seller concessions can be used to cover loan origination fees, title work costs, underwriting fees, prepaid property taxes, homeowner’s insurance, and escrow setup. What that means in practical terms is that a buyer who negotiates concessions into their offer can keep more of their cash available after closing for repairs, moving costs, property tax bills, or building an emergency fund.
In a Metro Detroit market where we are seeing more listings and more negotiating room than we had two or three years ago, this is a tool worth knowing. A well-structured offer that includes a concession request does not have to feel like a lowball to the seller. When it is framed correctly as part of the overall deal math, it often works.
This connects directly to how contingencies and negotiations are handled after you go under contract. If you want to understand what the full process looks like once your offer is accepted, my post on what really happens after you go under contract in Metro Detroit covers that in detail. And if you want to understand how contingencies protect you during that process, understanding real estate contingencies in Metro Detroit is worth a read before you make your first offer.
How to Prepare to Buy a Home in Metro Detroit in the Next 12 Months
This is the question I get most often from buyers who are not quite ready today but are serious about making a move. Vincent’s answer was direct and practical, and it comes down to three things lenders are looking at when you apply: your credit score, your debt to income ratio, and your assets.
Credit score. You want your score in a strong position before you apply. One of the most effective ways to move your score in the right direction is to keep your credit card balances well below their limits. If your card has a $2,000 limit, try to keep your statement balance closer to $250 to $500 rather than carrying a balance near the maximum. Doing this across multiple accounts compounds the effect. Your utilization ratio — how much of your available credit you are using — is one of the biggest factors in your score.
Debt to income ratio. The goal is to reduce your required monthly debt obligations before you apply. That means paying down or paying off accounts that carry a minimum monthly payment. Every dollar of monthly debt you eliminate increases the amount you can borrow for housing.
Assets. This is the one Vincent said surprises buyers most often. Many buyers arrive at the pre-approval stage with a good credit score and a manageable DTI, and then realize they have not saved enough to cover everything. The down payment is one piece of it, but closing costs, prepaid property taxes, homeowner’s insurance, and escrow setup are real numbers that need to come from somewhere. Start saving earlier than you think you need to, and save more than the down payment alone.
Vincent’s strong recommendation: reach out to a lender even if you are not ready to buy yet. A good lender will look at your full financial picture, tell you exactly where you stand, and lay out a specific plan to get you where you need to be. That conversation costs nothing and could save you months of guesswork.
If you are thinking about a 12-month timeline, this is also the right time to start watching specific Metro Detroit neighborhoods and getting familiar with what your budget buys you in the communities you care about. My post on what to do before mortgage rates drop covers the preparation side of that timing question well. And the 2026 Metro Detroit housing market reset post gives helpful context on what the broader market looks like heading into your buying window.
When you are ready to start the agent side of that conversation, I am here for that part too. You can learn more about how I work with buyers on my home buying services page.
Connect with Vincent Newsome
Vincent Newsome is a home loan advisor at National Mortgage Funding, based in Troy, Michigan. NMLS #713774.
You can reach him at:
- Email: VincentNewsome@nmfunding.com
- Phone: (248) 388-5528
Questions Metro Detroit Home Buyers Ask About Home Loans, DTI, and Getting Ready to Buy
What is a debt to income ratio and what percentage do I need to qualify for a home loan?
Your debt to income ratio is your total required monthly debt payments divided by your gross monthly income. For conventional loans, lenders generally want your DTI at 50 percent or below. FHA and VA loans allow higher ratios, typically up to 56 percent for FHA and slightly above that for VA loans depending on other factors. The ratio that gets you approved and the ratio that keeps your monthly payments comfortable may be different numbers, so it is worth having a direct conversation with your lender about what feels right for your budget.
Can I get a home loan in Metro Detroit if I am self-employed or a 1099 contractor?
Yes. Self-employed buyers and 1099 contractors qualify for home loans every day. The main difference is the documentation required. Lenders need two years of federal tax returns, and if you have a business entity, business returns as well. If you have owned your business for more than five years, conventional loan programs may allow lenders to use only your most recent year of income rather than averaging two years together. A lender experienced with self-employed borrowers will also know how to add back certain deductions to calculate a more accurate qualifying income.
What are seller concessions and how much can I get as a Metro Detroit home buyer?
Seller concessions are funds the seller directs from their sale proceeds toward your closing costs and other allowable expenses. The maximum amount depends on your loan type and down payment. On a conventional loan, you can receive 3 percent in concessions with 3 percent down, 6 percent with 10 percent down, and 9 percent with 25 percent down. FHA loans allow up to 6 percent regardless of down payment, and VA loans allow up to 4 percent. Concessions can be used to cover loan fees, title costs, property taxes, and homeowner’s insurance at closing.
How early should I contact a lender if I want to buy a home in 12 months?
Right now. A lender can review your full financial picture and tell you exactly where you stand on credit, DTI, and savings. That conversation is free and gives you a specific plan to follow in the months before you are ready to apply. Many buyers wait until they feel “ready” and then discover they need more time to build their credit score or save additional funds. Starting early removes that risk.
Do seller concessions hurt my chances of getting an offer accepted in Metro Detroit?
Not necessarily. A well-structured offer that includes a concession request is very different from a low offer with concessions. When the overall terms of the deal are strong, including price, contingencies, and closing timeline, most sellers are willing to consider concessions as part of the negotiation. How the request is framed in the offer language matters, and your agent and lender working together is the key to making it work.
What is the difference between a pre-qualification and a pre-approval?
A pre-qualification is typically a quick, surface-level review of your finances based on self-reported information. A pre-approval involves a lender actually verifying your income, assets, employment, and credit before issuing a letter. In a competitive market, a full pre-approval carries significantly more weight with sellers and listing agents than a pre-qualification. If you are serious about buying in Metro Detroit, get the full pre-approval done before you start making offers.
How do write-offs affect my ability to qualify for a home loan as a self-employed buyer?
Write-offs reduce your taxable income, which is the income figure lenders use to calculate your DTI. If you have been aggressively deducting business expenses, your qualifying income on paper may be lower than your actual cash flow. A lender who works frequently with self-employed borrowers knows how to review your returns and add back certain allowable items, which can meaningfully increase your qualifying income. This is why it is important to work with a lender experienced in non-traditional income documentation.
Download the Free Metro Detroit Home Buyer’s Guide
If you are thinking about buying a home in Metro Detroit, I put together a free Home Buyer’s Guide specifically for this market. It walks you through every step from your first lender conversation to closing day. Download it below and share it with anyone you know who is thinking about making a move.
Download the Free Home Buyer’s Guide
I’m Leslie E. Martin, and I look forward to helping you make your next move.
Contact Leslie E. Martin, Realtor® Phone: (734) 846-8358 Email: leslie@leslieemartin.com
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