Debt To Income Ratio
Debt to income ratio is the sum of all of your minimum monthly payments divided by your monthly gross income. There are maximum debt to income ratio requirements for the various mortgage loan programs. Conventional mortgage loan programs have maximum debt to income ratio caps of 45%. FHA has a maximum front end debt to income ratio of 46.9% and 56.9% back end debt to income ratio caps. The front end debt to income ratios is also called the housing ratio which is the monthly principal, interest, taxes, and insurance of your proposed new mortgage loan. The back end debt to income ratio is the housing expenses as well as all other monthly minimum debt payments such as minimum credit card payments, monthly automobile payments, student loan payments, installment loan payments, and any other minimum payments such as alimony payments, child support payments,etc. If your debt to income ratios exceed the maximum allowed, you need to either pay off certain debts or find some other alternative so your 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 FICO credit scores have front end debt to income ratio of 31% and a back end debt to income ratio of no greater than 43%. VA loans debt to income ratios are based on automated findings and 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. If you have an auto loan that has 10 or more months 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 exempted. Lease payments are not exempted from debt to income calculations because under the mortgage lender’s view is that once the lease is up, you will get another lease. Any other installment loans with 10 months or less in payments left are exempted from debt to income ratios.
Debts That Are Not Paid By The Borrower Is Exempted From Debt To Income Ratios
If you are a co-signer on a loan, whether you 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 as long as the actual person who is making the loan payment can provide the mortgage lender copies of 12 months canceled checks. Also, if you have a loan under your 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 if you have an automobile or recreational vehicle that is solely under your name but your son, father, or relative is making the actual payments on them, this can be excluded from your debt to income calculations. Again, you need to provide 12 months canceled checks from the person that is actually making the monthly payments to the mortgage loan underwriter.