This Article Is About Exempt Debts From Debt To Income Ratio To Qualify For Mortgage
There are certain Exempt Debts From Debt To Income Ratio.
- Borrowers with high debt to income ratios with debts that are co-signed and/or debts someone else is paying can get those debts exempt from DTI calculations
- The borrower needs to prove that someone else is paying for the debts and they are not responsible
- The way this is done is by getting 12 months canceled checks from the person who is paying the debt
- If 12 months of canceled checks is not available due to online payments, then 12 months of bank statements from the person paying the debts needs to be provided
- This type of case scenarios is very common
- For example, if you have outstanding student loans and your parents are paying for the monthly student loan debts, then this debt will be exempt if you can provide 12 months of canceled checks and/or 12 months of bank statements of your parents
- This is also common if you are a non-occupant co-borrower on a mortgage
- The main borrower needs to provide 12 months canceled checks and/or 12 months of bank statements to exempt the monthly debts from your debt to income ratios
The debt can be under your name and someone else can be paying for it and still be exempt from debt to income ratio calculations.
Debt To Income Ratio Calculations By Mortgage Underwriters
All home mortgage programs have a maximum debt to income ratio caps. The maximum debt to income ratio caps depends on the particular loan program.
- Debt to income ratio is the sum of all of minimum monthly payments divided by monthly gross income
- That percentage is borrowers debt to income ratio
- There are maximum debt to income ratio requirements for the various mortgage loan programs
- To get an approve/eligible per automated underwriting system on FHA loans, the maximum front end DTI cannot exceed 46.9% and maximum back end DTI cannot exceed 56.9%
- USDA caps the front end DTI at 29% and maximum DTI at 41% DTI
- Fannie Mae and Freddie Mac cap the maximum DTI at 50% on conventional loans
- VA loans do not have a maximum debt to income ratio cap as long as the borrower can get an approve/eligible per automated underwriting system
- Most non-QM mortgage programs cap debt to income ratios at 50% DTI
Maximum Debt To Income Ratio Guidelines On Conventional Loans
Conventional mortgage loan programs have maximum debt to income ratio caps of 50% to get an approve/eligible per Automated Underwriting System Approval:
- FHA has a maximum front end debt to income ratio of 46.9% and 56.9% back end debt to income ratio caps to get AUS Approval
- The front end debt to income ratios is also called the housing ratio
- Housing Ratio is the monthly principal, interest, taxes, and insurance of proposed new mortgage divided by the borrowers monthly gross income
The back end debt to income ratio is the housing expenses in addition to all other monthly minimum debt payments such as the following:
- minimum credit card payments
- monthly automobile payments
- student loan payments
- installment loan payments
- any other minimum payments such as alimony payments, child support payments, etc
Solutions If Borrowers Exceed Debt To Income Ratios
If debt to income ratios exceed the maximum allowed, borrowers need to either pay off certain debts or find some other alternative so debt to income ratios are in line within the allowed debt to income ratio limits:
- USDA loan programs have maximum front end debt to income ratios of 28% and 41% back end debt to income ratios
- All manual underwrites and those with credit scores under 620 credit scores have front end debt to income ratio of 31% and a back end debt to income ratio of no greater than 43%
- However, manually underwritten VA and FHA Loans can go up to 50% debt to income ratio with 2 compensating factors
- Borrowers can go up to 50% debt to income ratios on Manual Underwrites with compensating factors
- VA loans debt to income ratios are based on automated findings
- Gustan Cho Associates Mortgage Group has no minimum credit score requirements on VA Mortgages
- Gustan Cho Associates has no maximum debt to income ratio caps lender overlays on government and conventional loans
VA Mortgage Guidelines are more lenient than other mortgage loan programs.
Exempt Debts In Debt To Income Ratio Qualification
There are certain debts that are exempted from debt to income ratios.
- Consumers with auto loan that has 10 or less worth of payments left, this can be excluded from the debt to income ratios
- It needs to be an automobile purchase loan and not an auto lease in order for it to be exempt from DTI Calculations
- Lease payments are not exempt from debt to income calculations
- This is because under the mortgage lender’s view is that once the lease is up, consumer will get another lease
Any other installment loans with 10 months or less in payments left are exempt from debt to income ratios.
Debts That Are Not Paid By The Borrower Is Exempted From Debt To Income Ratios
Co-signers on a loan, whether they are a non-occupant co-borrower for a family member on another mortgage or are a co-signer on a student loan or auto loan but are not making the payments, these monthly payments can be excluded from debt to income ratios.
How Can Debts Paid By Others Be Exempt
This applies as long as the actual person who is making the loan payment can provide the mortgage lender copies of 12 months canceled checks and/or bank statements:
- Also, if consumer has loan under their name but someone is making payments on the monthly payment, this debt can be excluded from debt to income ratios
Examples of these types of debt are the following:
- if consumer has an automobile or recreational vehicle that is solely under name but son, father, or relative is making the actual payments on them, this can be excluded from debt to income calculations
- Again, need to provide 12 months canceled checks and/or bank statements from the person that is actually making the monthly payments to the mortgage underwriter
Gustan Cho Associates Mortgage Group are direct lenders with no mortgage overlays on government and conventional loans. We have no overlays on debt to income ratios. Many mortgage lenders will cap debt to income ratios on FHA Loans at 45% to 50% DTI. However, HUD, the parent of FHA, allows maximum debt to income ratios to be 46.9% front end and 56.9% back end to get an approve/eligible per Automated Underwriting System Approval on FHA Loans. Many VA Lenders will cap debt to income ratios to 45% on VA Loans. However, VA has no maximum debt to income ratio requirements on VA Home Loans. Gustan Cho Associates Mortgage Group has no debt to income ratio requirements. We have closed many VA Home Loans with debt to income ratios exceeding 60% with an approve/eligible per AUS. Please contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response if you need to qualify with a national mortgage lender with no overlays on debt to income ratios. Or email us at gcho@gustancho.com.
This BLOG On Exempt Debts From Debt To Income Ratio Was UPDATED On November 16th, 2020
