Debt-to-Income Ratio Limit

DTI Overlays Required By Lenders on Home Loans

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers the DTI overlays lenders require on government and conventional loans. DTI overlays are imposed on home mortgage programs by lenders. All mortgage companies must adhere to agency mortgage guidelines on government and conventional loans. There are three government-backed loan programs: FHA, VA, and USDA.

Government loans have their minimum agency lending requirements by the individual government agency. HUD has its lending agency guidelines on FHA loans.

The Veterans Administration has its lending agency guidelines for VA loans. The USDA has its mortgage guidelines for USDA loans.  For the government agency to insure or partially guarantee lenders against default or foreclosure on government loans, the lender needs to follow the agency mortgage guidelines. The following paragraphs will cover DTI overlays on government and conforming loans.

Fannie Mae Guidelines Versus DTI Overlays By Lenders on Conventional Loans

Conventional loans are often referred to as conforming loans. Conventional loans are called conforming loans because for Fannie Mae or Freddie Mac to purchase conventional loans funded in the secondary mortgage bond market, the conventional loans need to conform to Fannie Mae or Freddie Mac Agency Guidelines.

If the loans do not conform to Fannie Mae or Freddie Mac Agency Guidelines, the conventional loans cannot be sold. Lenders use their warehouse line of credit to fund conventional loans.

Lenders need to sell the conventional loans they fund so they can pay down their warehouse line of credit 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.

Speak With Our Loan Officer for Fannie Mae For Conventional Loans

DTI Overlays Imposed By Mortgage Companies

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If agency guidelines are not followed, then the government agency will not insure or partially guarantee against the loss sustained by the lender.  Most banks and mortgage companies have DTI overlays on government and conventional loans. The debt-to-income ratio, DTI, is one of the most important factors in qualifying for a home mortgage.  

The debt-to-income ratio is calculated by adding the sums of all minimum monthly debt payments borrowers have and dividing that sum by the 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. This article covers the DTI overlays lenders require on government and conforming loans.

DTI Overlays: Type of Debt-to-Income Ratios

There are two debt-to-income ratio requirements: Federal minimum mortgage lending guidelines on debt-to-income ratios. Then, each mortgage lender overlays with DTI. Lender overlays are the individual lender’s lending guidelines above and beyond the minimum agency guidelines. Each mortgage loan program has its own DTI overlays.

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 credit scores under 620 credit scores require 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 cap at 29% front end and 41% DTI back end.

Get Qualify For Mortgage Loan With Credit Scores Under 620, Click Here

DTI Overlays Required By Mortgage Lenders

There are no debt-to-income ratio requirements on VA home loans. All VA loans’ debt-to-income ratios depend on the findings of the Automated Underwriting System. However, most VA mortgage lenders will require 43% debt-to-income ratio limits. VA has no maximum debt-to-income ratio caps. There are countless borrowers with over 60% debt-to-income ratios for whom I have gotten an approve/eligible per the automated underwriting system and have closed on VA mortgages. Unfortunately, most lenders will cap VA DTI at 45% to 50%, despite Veterans Affairs not having a maximum cap on debt-to-income ratio.

No DTI Overlays at Gustan Cho Associates

Gustan Cho Associates has no DTI overlays on VA home loans. Jumbo mortgage Lenders normally have 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 overlays with DTI. Overlays are individual lenders’ requirements that surpass the minimum lending guidelines set by FHA, Fannie Mae, Freddie Mac, USDA, and VA.

Examples of DTI Overlays

Most lenders have DTI overlays on government and conventional loans. HUD 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% on the front end and 56.9% on the 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.

Not All Lenders Have The Same DTI Overlays on Home Loans

Depending on the borrower’s credit scores, many lenders will have DTI overlays. For example, some lenders will not accept debt-to-income ratios higher than 45% DTI if the borrowers’ credit scores are under 680. 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 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 must consult a mortgage lender with no DTI overlays like myself. Contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response if you want a home loan with no DTI overlays. Or email us at The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.

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