What Are 2017 FHA DTI Guidelines
This BLOG On What Are 2017 FHA DTI Guidelines Was Written By Gustan Cho
What Are 2017 FHA DTI Guidelines? Many FHA Borrowers often get confused when they consult with a loan officer whether it is a loan officer from a FDIC Bank or mortgage lender because every time the borrower ask the loan officer what is the minimum debt to income ratios to qualify for a FHA Loan, they get a different answer. This is typical in many instances because there are two separate sets of FHA Guidelines . Here the the two separate types of FHA Guidelines:
- HUD FHA 4000.1 Handbook: The HUD 4000.1 FHA Handbook is the minimum FHA Mortgage Lending Guidelines that has been created and launched by The United States Department of Housing and Urban Development known by many as HUD. As long as a bank or mortgage company follows the HUD 4000.1 FHA Handbook when it comes to originating and funding a borrower when originating and funding a FHA Loan and that bank and/or lender is an FHA Approved Lender, then the FHA Loan will be insured in the event the borrower does default and the property goes into foreclosure. Mortgage lenders who just go off the HUD 4000.1 FHA Handbook are called lenders with no overlays .
- FHA LENDER OVERLAYS : FHA Lender Overlays are just because HUD requires a certain FHA Lending Requirement, the individual mortgage lender does not have to accept the minimum requirement and each FHA mortgage lender can have their own lender requirements that are above and beyond than the minimum FHA Lending Guidelines. For example, FHA only requires a 580 FICO for a home buyer to have to qualify for a 3.5% down payment home purchase FHA Loan. However, not too many lenders will approve a borrower with credit scores under 620 FICO credit scores. Many lenders will require for borrowers to have 620 FICO while others will set higher credit score standards like having minimum credit score requirements of 640 FICO. Fortunately, I a loan officer that has no lender overlays and can go down to a 580 FICO credit scores. There are lender overlays on many HUD Guidelines.
Typical Lender Overlays
Below are common overlays imposed by many FHA Lenders
- Debt To Income Ratios: DTI Overlays are deal killers for many borrowers. 2017 FHA DTI Guidelines show no changes with HUD, however, many mortgage lenders have toughen up 2017 FHA DTI Guidelines. We will discuss 2017 FHA DTI Guidelines on a later paragraph
- Credit Scores: Most mortgage lenders do have lender overlays on borrowers with under 620 FICO Credit Scores
- Credit Tradelines: Credit Tradelines are credit active credit accounts that the borrower has had timely payment history for at least 12 months. Most mortgage lenders will have a minimum of three credit tradelines required as their overlay requirements. Some lenders may require two years of payment and seasoning requirement on credit tradelines
- VOR: Some FHA Lenders will require Verification of Rent or VOR requirement even though the automated underwriting system or AUS may not require it as part of their lender overlay
- Collection Accounts and Charge Off Accounts: FHA does not require that borrowers pay off outstanding collection accounts and charge off accounts. However, many mortgage lenders may require that any outstanding collection accounts over a certain balance be paid off and all charge off accounts be paid off. This is not a FHA requirement and it is a lender overlay
Debt To Income Ratio Requirements On FHA Loans
Debt To Income Ratio is the total sum of all of the borrower’s minimum monthly payments, which includes the proposed P.I.T.I. (Principal, Interest, Tax, and Insurance) divided by the borrower’s monthly gross income. Many FHA Lenders do have overlays on debt to income ratios. Here are the 2017 FHA DTI Guidelines:
- Any borrower with credit scores of under 620 FICO, the maximum debt to income ratio allowed for an approve/eligible per Automated Underwriting System is capped at 43% DTI
- If the lender will require a front end debt to income on borrowers of credit scores under 620 FICO credit scores, that is an overlay on behalf of the lender. FHA only requires a maximum of 43% debt to income ratio on borrowers with credit scores of under 620 FICO and has no front end debt to income ratio cap. Many lenders may have a front end debt to income ratio cap of 31% DTI which again is an overlay and not a FHA Guideline
- To get an approve eligible per AUS Findings on borrowers with credit scores of at least 620 FICO, the maximum front end debt to income ratio allowed is 46.9% DTI and the maximum back end DTI allowed is 56.9% DTI
- Many FHA Lenders may have overlays 2017 FHA DTI Guidelines where they may cap the debt to income ratios at 45% DTI to 50% DTI
- Debt To Income Ratio caps on manual underwrites can exceed over 50% DTI if the borrower has compensating factors
If you are getting denied for a FHA Loan because of higher debt to income ratios, please contact Gustan Cho at 262-716-8151 or email Gustan Cho at firstname.lastname@example.org. The Gustan Cho Team is available 7 days a week, evenings, weekends, and holidays.