DTI Overlays Required By Lenders On Government And Conforming Loans

This Article Is About DTI Overlays Required By Lenders On Government And Conforming Loans

Lender DTI Overlays Impose On Home Mortgage Programs By Lenders:

All mortgage companies need to adhere to agency mortgage guidelines on government and conventional loans.

• There are three government-backed loan programs: FHA, VA, USDA
• Government loans have their own minimum agency lending requirements by the individual government agency
• HUD has its own lending agency guidelines on FHA loans
• The Veterans Administration has its own lending agency guidelines for VA loans. USDA has its own lending agency mortgage guidelines on USDA loans
• In order for the government agency to insure and/or partially guarantee lenders against default and/or foreclosure on government loans, the lender needs to follow the agency mortgage guidelines
• If agency guidelines were not followed, then the government agency will not insure and/or partially guaranteed against the loss sustained by the lender
• Conventional loans are often referred to as conforming loans
• The reason conventional loans are called conforming loans is because in order for Fannie Mae and/or Freddie Mac to purchase conventional loans funded in the secondary mortgage bond market, the conventional loans need to conform to Fannie Mae and/or Freddie Mac Agency Guidelines
• If the loans do not conform to Fannie Mae and/or Freddie Mac Agency Guidelines, the conventional loans cannot be sold
• Lenders use their warehouse line of credit to fund conventional loans
• However, lenders need to sell the conventional loans they fund so they can pay down their warehouse line of credit in order to make more loans
• Conforming loans are not government-backed loans

Fannie Mae and Freddie Mac’s role is to provide liquidity in the mortgage markets so lenders can offer low down payment mortgages at low mortgage rates.

Lender Overlays Imposed By Mortgage Companies

Most banks and mortgage companies have DTI Overlays on government and conventional loans:

• Debt To Income Ratio, referred to as DTI, is one of the most important factors in qualifying for a home mortgage
• Debt To Income Ratio is calculated by adding the sums of all minimum monthly debt payments borrowers has and by taking that sum and dividing it by borrower’s monthly gross income
• With lenders, the proposed P.I.T.I. ( principal, interest, taxes, and insurance ), is included as a monthly debt payment in calculating debt to income ratios for a home loan qualification

In this article, we will discuss and cover DTI Overlays Required By Lenders On Government And Conforming Loans.

Type Of Debt To Income Ratios

There are two types of debt to income ratio requirements:

• There are federal minimum mortgage lending guidelines on debt to income ratios
• Then each individual mortgage lender overlays with DTI
• Lender overlays are the individual lender’s own lending guidelines that are above and beyond the minimum agency guidelines
• Each individual mortgage loan program has its own DTI Requirements
• FHA DTI Requirements allow up to 46.9% front end and 56.9% DTI back end for borrowers with credit scores of 620 or higher to get an approve/eligible findings per automated underwriting system
• Front end debt to income ratio requirements are capped at 46.9% DTI on borrowers with credit scores of 620 or higher
• Borrowers with under 620 Credit Scores requires a debt to income ratio of no greater than 43% DTI under FHA Guidelines
•  Debt To Income Ratio Requirements On Conventional Loans are capped at 50% DTI

USDA Loans have a debt to income ratio caps at 29% front end and 41% DTI back end.

DTI Overlays Required By Mortgage Lenders

There is no debt to income ratio requirements on VA Home Loans.

• All VA Loans debt to income ratios depends on the finding of the Automated Underwriting System
• But most VA mortgage lenders will require 43% debt to income ratio limits
• VA has no maximum debt to income ratio caps
• There are countless of borrowers with over 60% debt to income ratios that I have gotten an approve/eligible per automated underwriting system and have closed on VA Mortgages

Unfortunately, most lenders will cap VA DTI at 45% to 50%.

No Lender Overlays At Gustan Cho Associates

Gustan Cho Associates has no overlays on VA Home Loans:

• Jumbo Mortgage Lenders normally have a debt to income ratio cap limits at 40% DTI
• Just because borrowers meet debt to income ratio requirements does not mean they qualify with all mortgage lenders
• Many lenders can impose their own overlays with DTI

Overlays are individual lenders requirements that surpass the minimum lending guidelines that is set by FHA, Fannie Mae, Freddie Mac, USDA, and VA.

Examples Of DTI Overlays

FHA mortgage lending guidelines on debt to income ratios depend on the borrower’s credit scores.

• If credit scores are at least 620 or higher, the maximum debt to income ratio requirement is 46.9% front end and 56.9% DTI back end to get an approve/eligible on AUS
• If credit scores are under 620, then the debt to income ratio requirements will drop to 43% DTI to get an approve/eligible per automated underwriting system findings

Many lenders will have overlays with DTI depending on the borrower’s credit scores.

• For example, some lenders will not accept debt to income ratios of higher than 45% DTI if the borrowers’ credit scores are under 680 credit scores
• Other lenders will limit the debt to income ratios to 43% DTI for borrowers who have credit scores of 640 and under
• Some lenders will limit the maximum debt to income ratio cap to 50% DTI
• This holds true even though the borrower has over 700 credit scores
• This is the case even though FHA DTI limits are capped at 56.9% DTI

Borrowers with higher debt to income ratios need to consult with a direct mortgage lender who has no DTI Overlays like myself. Contact us at Gustan Cho Associates Mortgage Group at 800-900-8569 or text us for a faster response if looking for a home loan with no overlays with DTI. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.