Do All Lenders Have The Same DTI Guidelines On Mortgages

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This ARTICLE On Do All Lenders Have The Same DTI Guidelines On Mortgages Was PUBLISHED On June 21st, 2020

One of the many questions we get daily by our borrowers is Do All Lenders Have The Same DTI Guidelines On Mortgages.

  • The answer is NO. All loan programs, with the exception of VA loans, have a maximum debt to income ratio cap
  • For example, the maximum DTI on FHA loans to get an approve/eligible per AUS is 46.9% front-end and 56.9% back-end
  • Fannie Mae and Freddie Mac do not have a maximum front-end DTI
  • However, Fannie Mae and Freddie Mac cap the debt to income ratio to 50% to get an approve/eligible per automated underwriting system on conventional loans
  • USDA will cap the maximum front end DTI at 29% front-end and 41% back-end DTI to get an AUS Approval
  • FHA and VA are the two only loan programs that allow manual underwriting
  • Manual underwriting will cap debt to income ratio to 50% with compensating factors
  • Debt to income ratio is important because lenders want to make sure borrowers have the ability to repay their new mortgage loan

Only qualified income can be used by mortgage underwriters. Cash-income and other income that is not considered qualified income cannot be used.

Meeting The Minimum Agency Mortgage Guidelines Versus Lender Overlays

To qualify for a particular loan program, all lenders need to have their borrowers meet the minimum agency debt to income ratio requirements.

  • However, lenders can have higher lending standards called lender overlays
  • Lender overlays are higher lending standards that are above and beyond the minimum agency mortgage guidelines by HUD, VA, USDA, Fannie Mae, Freddie Mac
  • For example, even though the Veterans Administration does not have a maximum debt to income ratio cap, most lenders will have overlays on VA loans with DTI at 45% to 50% DTI
  • Just because you do not qualify with one lender due to high DTI does not mean you do not qualify with another lender with no lender overlays
  • GCA Mortgage Group is one of the very few national lenders with no lender overlays on government and conventional loans

In this article, we will discuss and cover the topic of Do All Lenders Have The Same DTI Guidelines On Mortgages.

Do All Lenders Have The Same DTI Guidelines On Mortgages: Understanding Lender Overlays

As mentioned earlier, all lenders need to meet the minimum lending agency guidelines.

  • However, lenders can have lender overlays and require higher credit and income standards
  • Lenders can have lender overlays on just about anything
  • This holds especially true with debt to income ratios
  • VA loans are the only loan program with no maximum debt to income ratios
  • As long as you can get an approve/eligible per the automated underwriting system on a VA loan, you qualify for a VA  loan
  • Gustan Cho Associates recently closed on a VA loan with a 593 credit score and a 63% debt to income ratio on a VA loan
  • However, most lenders will cap debt to income ratios to 41% to 50% even though the VA does not require a maximum DTI
  • It is not illegal for a lender to impose lender overlays
  • Borrowers with less than perfect credit need to understand agency guidelines versus lender overlays on loan programs
  • Just because one lender says you do not qualify for a mortgage does not mean you do not qualify with another lender
  • Unfortunately, many loan officers will not tell you that you meet the agency mortgage guidelines but do not qualify for a particular loan program
  • They will just tell you that you do not qualify for a particular loan program with their particular mortgage company
  • This is why it is important to fully understand the basic agency mortgage guidelines

Gustan Cho Associates is a five-star national lender licensed in multiple states with zero lender overlays on government and conventional loans.

Common Lender Overlays Imposed By Lenders

The majority of lenders will have lender overlays. The great news there are lenders like us at GCA Mortgage Group with no lender overlays on FHA, VA, USDA, and Conventional loans.

Here are common lender overlays imposed by lenders on government and conventional loans:

  • Many lenders will impose credit score lender overlays which require a higher credit score than the minimum agency guidelines
  • Most lenders will have a debt to income ratio cap lender overlays
  • Many lenders will not allow manual underwriting when FHA and VA permits it
  • Lenders may require to pay outstanding collections and charged-off accounts when agency mortgage guidelines do not require it
  • Many lenders will not accept gift funds when it is allowed
  • Lenders may require reserves when the automated underwriting system does not require it
  • There are many lenders that will not allow late payments after bankruptcy, foreclosure, deed in lieu of foreclosure, short-sale when the automated underwriting system renders an approve/eligible
  • Lenders may not allow non-occupant co-borrowers when agency guidelines permit it

Lenders can impose lender overlays on just about anything and everything. Please do your homework and understand the minimum agency mortgage guidelines prior to choosing a lender. Remember, if you meet the minimum agency mortgage guidelines but a lender says you do not qualify, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at gcho@gustancho.com. The team at GCA Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

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