Debt to income ratio in mortgage qualification
Debt to income ratio is one of the most important factors in mortgage qualification. A one percent overage in debt to income ratio can mean a mortgage loan denial.
Debt to income ratio is the total of your monthly payments which includes minimum credit card payments, automobile loan payment, installment loans, alimony, and any other monthly payments divided by your total gross monthly income. Most mortgage lenders have a maximum 40% limit on debt to income ratio requirements for conventional mortgage loans. FHA mortgage loan programs can have maximum debt to income ratio requirements as high as 56.9%. The lower your credit scores the lower your debt to income requirements will be. For example, if your credit scores are lower than 620 FICO, you maximum debt to income ratio requirement for a FHA mortgage loan will probably be set at 45% unless you have one year rental verification. However, if your 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 requirements for credit scores of 580 FICO and 620 FICO
Having credit scores under 620 FICO will hurt you when you are applying for a mortgage loan. It will definitely hurt you and cost you in getting a higher mortgage rate than if you were to have credit scores of 620 FICO or higher. A 620 FICO credit score is not a good credit score. It is still considered very poor however it will open up many doors if you are a first time home buyer and need to maximize your gross income to qualify for a mortgage loan. More importantly that getting a higher mortgage rate, you debt to income ratio requirements will significantly be much more lenient with a 620 credit score than credit scores under 620 FICO credit scores.
For mortgage loan borrowers with credit scores under 620 FICO scores should really consider trying to improve their credit scores prior to applying for a mortgage loan.
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