How To Qualify For Mortgage With Debt To Income Ratio Issues
This BLOG On How To Qualify For Mortgage With Debt To Income Ratio Issues Was UPDATED On August 26, 2017
Debt to income ratio is one of the most important factors in mortgage qualification. Debt To Income Ratio is calculated as follows:
- Front End Debt To Income Ratio is calculated by taking the proposed new housing payment (Principal, Interest, Taxes, Insurance PITI) and dividing it by the borrowers monthly gross income
- Back End Debt To Income Ratio is calculated by taking the sums of the PITI and all other monthly minimum debt payments of the borrower and dividing it by the borrowers monthly gross income
Types Of Debt To Income Ratios
Every mortgage loan program has its own debt to income ratio requirements.
- For example, FHA, VA, USDA, and Conventional Loans have its own debt to income ratio requirements.
- Lenders can also have their own debt to income ratio requirements that has higher standards than the minimum mortgage guidelines of FHA, VA, USDA, FANNIE MAE, FREDDIE MAC.
- The higher standards required by lenders is called overlays.
- Most lenders have lender overlays on government and conventional loans.
- The Gustan Cho Team at USA Mortgage does not have any lender overlays on government and conventional loans.
Two of the most important factors to qualify for mortgages are the following:
- Credit & Credit Scores
- Debt To Income Ratio
Refer/Eligible Per Automated Underwriting System Due To Debt Income Ratio Issues
There are certain debt to income ratio requirements that mortgage borrowers need to meet to get an approve/eligible per Automated Underwriting System. For example, many home buyers with debt to income ratio issues choose FHA Loans because HUD Guidelines on debt to income ratio allows up to 46.9% front end and 56.9% back end for an approve/eligible per AUS but borrowers need a 620 credit score. Borrowers with under 620 credit scores, debt to income ratios is capped at 43% for an approve/eligible per AUS.
- A one percent overage in debt to income ratio can mean a REFER/ELIGIBLE PER AUS.
- Debt to income ratio is calculated by taking the total monthly payments which includes minimum credit card payments, automobile loan payment, installment loans, alimony, and any other monthly payments divided by total gross monthly income.
- Most mortgage lenders have lender overlays on debt to income ratios.
- Fannie Mae used to have a maximum 45% limit on debt to income ratio requirements for conventional mortgage loans.
- However, recent changes on Fannie Mae Guidelines has increase debt to income ratio requirements to 50% DTI like Freddie Mac.
- FHA mortgage loan programs can have maximum debt to income ratio requirements as high as 46.9% front end and 56.9% back end.
- The lower borrowers credit scores the lower debt to income requirements will be.
- For example, borrowers with credit scores are lower than 620 FICO, maximum debt to income ratio requirement for a FHA mortgage loan is capped at 43% DTI.
- However, if credit scores are over 620 FICO, your maximum debt to income can jump to 56.9% on a FHA mortgage loan.
Debt To Income Ratio Issues With Under 620 Credit Scores
Having credit scores under 620 FICO lowers the debt to income ratio cap from 56.9% to 43% DTI for FHA Loans.
- Lower credit scores means higher mortgage interest rates.
- A 620 FICO credit score is a fair credit score.
- It is still considered very poor however borrowers with under 620 credit scores will take a LPA (LOAN PRICING ADJUSTMENT) which mean higher mortgage rates.
- More importantly that getting a higher mortgage rates having under 620 credits scores will lower debt to income ratio requirements.
For home buyers with credit scores under 620 FICO scores and with high debt to income ratio issues should really consider trying to improve their credit scores prior to applying for a FHA Loan. Home Buyers needing help with credit advice can visit Credit Fix Advisors for valuable information.
Home Buyers with high debt to income ratio issues and needing to qualify for a home loan, contact The Gustan Cho Team at 1-800-900-8569 or text us at 2620716-8151 or email us at email@example.com.