Debt To Income Ratio Caps With Low Credit Scores Mortgage Guidelines

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Debt To Income Ratio Caps With Low Credit Scores Mortgage Guidelines

This BLOG On Debt To Income Ratio Caps With Low Credit Scores Mortgage Guidelines Was UPDATED On August 1st, 2018

There are debt to income ratio caps with low credit scores with FHA Loans.

  • Maximum debt to income ratios on conventional loans are capped at 50%
  • With conventional loans, the minimum credit scores required is 620
  • Whether credit scores are 620 or 800, the debt to income ratio caps on conventional loans are capped at 50%
  • Same with USDA Loans
  • Maximum debt to income ratios on USDA Loans is capped at 29% front end and 41% back end
  • Whether credit scores are 640 or 740, debt to income ratios on USDA Loans are capped at 29%/41%
  • Jumbo mortgages have debt to income ratio caps at 40%
  • With VA Loans, debt to income ratios depends on what the automated underwriting system states
  • Can vary depending on how the automated system reads the individual borrower
  • Most lenders want the borrower’s debt to income ratios not to exceed 41% to 50%
  • However, the Department of Veterans Affairs has no debt to income ratio nor credit score requirements
  • Most lenders has overlays on VA Loans
  • Gustan Cho Associates has no overlays on VA Mortgages
  • FHA Loans have the most liberal and loose debt to income ratio caps
  • However, there are debt to income ratio caps with low credit scores with FHA Loans

FHA Debt To Income Ratio Caps With Low Credit Scores Mortgage Guidelines

FHA Loans are by far the most popular residential mortgage loans today.

  • FHA Loans enables a home buyer to purchase a home with a 3.5% down payment and with a credit score of 580
  • Home buyers can qualify for a FHA Loan after the following:
    • two years after a Chapter 7 Bankruptcy
    • one year into a Chapter 13 Bankruptcy
    • no waiting period after Chapter 13 Bankruptcy discharged date
    • three years after a foreclosure and deed in lieu of foreclosure
    • three years after a short sale
  • Home buyers can qualify for a FHA Loan with unpaid collections accounts and charged off accounts
  • HUD Guidelines exempts all medical collection accounts with balances as well as charge offs
  • With non-medical collection accounts, borrowers can qualify for a FHA Loan without having to pay off the collection account
  • Borrowers with more than $2,000 in unpaid collection accounts, then 5% of the unpaid balance will be used to calculate debt to income ratios as hypothetical monthly debt
  • If the unpaid collection account balances are rather large and the 5% of the unpaid collection balance is too high in meeting the debt to income ratio caps, borrowers can make a written payment agreement with the creditor
  • The amount agreed upon the written payment agreement will be used to calculate the debt to income ratios in lieu of the 5% of the unpaid balance
  • There is no seasoning requirement with this and the day the written payment agreement is signed by both parties is the date it will go into effect

FHA Loans With Under 620 Credit Scores

Home buyers or homeowners can qualify for a FHA Loan with a 580 credit scores.

  • However, there are debt to income ratio caps with low credit scores
  • If credit scores are under 620, the maximum debt to income ratio caps is capped at 43% debt to income ratio for Automated Underwriting System Approval
  • No front end debt to income ratio
  • Borrowers with credit scores are at least 620, then back end debt to income ratios can go up as high as 46.9% front end and 56.9% back end DTI to get AUS FINDINGS Approval
  • Borrowers with under 620 credit scores and higher debt to income ratios can try to boost  credit scores to at least a 620 to take advantage of the higher DTI caps
  • There are some quick fixes to boost credit scores
  • Some quick fixes may be to pay down credit cards
  • Ogetting several secured credit cards
  • Adding positive credit with high available credit limit will definitely boost up credit scores
  • Maxed out credit cards will hurt credit scores
  • Paying down your credit cards to 10% of available credit limit will boost credit scores as well

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