Debt To Income Ratios On Conventional Loans Versus Other Loans

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Debt To Income Ratios On Conventional Loans Versus Other Loans

This BLOG On Debt To Income Ratios On Conventional Loans Versus Other Loans Was UPDATED On January 31st, 2019

Debt to income ratios is what determines whether or not you qualify for a mortgage loan.

  • Debt to income ratios is the sum of all of monthly minimum payments, including proposed principal, interest, taxes, and insurance ( PITI ) divided by monthly gross income
  • Debt to income ratios requirements are different for the various mortgage loan programs
  • FHA has debt to income ratio caps at 56.9%
  • USDA loan programs have debt to income ratio caps at 41%
  • VA loans does not have debt to income ratios caps
  • VA Loans debt to income ratio are determined by Automated Underwriting System Findings
  • Jumbo mortgages have debt to income ratio caps depending on the particular lender
  • Portfolio lenders often have debt to income ratio caps are determined by individual lender
  • Debt To Income Ratios On Conventional Loans is capped at 50% to get an approve/eligible per AUS FINDINGS

What Are Conventional Loans

Conventional loans are loans that meet Fannie Mae and/or Freddie Mac lending guidelines and are different than FHA loans. FHA, VA, USDA Loans are guaranteed by the government. Conventional Loans are not guaranteed by the government.

  • Conventional loans have different mortgage lending guidelines
    • Different credit score minimum requirements
    • Debt To Income Ratios On Conventional Loans requirements is lower than FHA loans
  • The two most popular loan programs are FHA loans and Conventional loans
  • We will compare these two loan programs on this blog

Requirements On Conventional Loans

Conventional minimum credit score requirement is 620 whereas minimum credit score requirements for FHA loans is 580:

  • Conventional loans have different waiting period requirements after a bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale than FHA loans
  • There is a 7 year waiting period after foreclosure to qualify for a conventional loan after the recorded date of a foreclosure
  • There is a three year waiting period after foreclosure to qualify for a FHA loan
  • There is a four year waiting period after a deed in lieu of foreclosure or short sale to qualify for a conventional loan
  • There is a three year waiting period after a deed in lieu of foreclosure or short sale to qualify for a FHA loan
  • There is a four year mandatory waiting period to qualify for a conventional loan after a discharge date of a bankruptcy
  • There is a two year mandatory period after a bankruptcy discharge date to qualify for a FHA loan
  • Minimum down payment for a conventional loan is 3% down payment for a first time home buyer
  • First Time Home Buyers are defined as someone who has not owned a home in the past three years
  • 5% down payment for seasoned home buyers
  • FHA requires a minimum 3.5% down payment on a home purchase

Debt To Income Ratios For Conventional Loans

Debt to income ratios for conventional loans is capped at 50%.

  • There are no front end debt to income ratios for conventional loans
  • FHA loans, the maximum front end debt to income ratios is capped at 46.9% and back end is capped at 56.9%
  • The front end debt to income ratios are often referred to housing ratios:
    • Proposed principal, interest, taxes, and insurance divided by the borrowers monthly income
  • The back end DTI is the sum of the PITI plus all monthly minimum payments divided by the borrower’s gross monthly income

FHA Loans Versus Conventional Loans

FHA loans have much lenient mortgage lending guidelines than conventional loans.

  • Debt to income ratios FHA guidelines are much more generous than conventional loans
  • FHA loans have much more lenient lending guidelines
  • Waiting periods after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale is much shorter for FHA loans than Conventional Loans
  • FHA loans also ignore unpaid collection accounts
  • Especially medical collection accounts where borrowers with unpaid collection accounts can qualify for a mortgage
  • FHA allows non-occupant co-borrowers to be added on the mortgage for those who cannot get income documentation and/or have no income

Other Loan Programs

Every loan program have different debt to income ratio requirements.

  • FHA is far the most generous when it comes to maximum debt to income ratios at 56.9%
  • USDA loans are capped with 41% DTI
  • VA Loans does not have a maximum debt to income ratio cap

Home Buyers or Homeowners who need to qualify for mortgage loan with a national direct lender with no mortgage lender overlays can contact us at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We do not have any overlays Debt To Income Ratios On Conventional Loans. We are available 7 days a week, evenings, weekends, and holidays.

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