Fannie Mae-Freddie Mac Exempt Monthly Debts Guidelines On Conventional Loans

This Article Is About Fannie-Mae-Freddie Mac Exempt Debt Guidelines

There are certain monthly debts lenders will exempt when calculating the debt to income ratio. There are cases where mortgage borrowers have debts reporting on their credit report that is being paid by others.  Exempt Debt Guidelines allow any installment debts that are paid by a family member and/or relative to be exempt from DTI Calculations. Many lenders do not allow this unless the person who is paying on the debt is reported as a co-borrower. Or they may require the person paying the actual debt to be a joint borrower. However, under Exempt Debt Guidelines, the actual person paying on the debt does not need to be on the note as a co-borrower and/or joint borrower. 

The majority of lenders have lender overlays with regards to debts being paid by others.

Lender Overlays are additional mortgage guidelines that are above and beyond those of the minimum Fannie Mae and/or Freddie Mac Guidelines. Lenders must meet the minimum lending guidelines. However, lenders can have higher underwriting guidelines that are above and beyond agency guidelines.

Gustan Cho Associates has no overlays on Fannie-Mae-Freddie Mac Exempt Debt Guidelines. However, most lenders with not honor Fannie-Mae-Freddie Mac Exempt Debt Guidelines unless the person paying the debt is listed as a co-borrower and/or joint account.

Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on government and conventional loans. Gustan Cho Associates will exempt the monthly debt payment of the borrower if another person is paying the actual date. The person paying the actual debt does not have to be on the loan. 

Fannie Mae-Freddie Mac DTI Guidelines On Conventional Loans

The maximum debt to income ratio on Conventional Loans is 50% DTI.

There is no front-end DTI on conventional loans. HUD, the parent of FHA allows 46.9% front end and 56.9% back end DTI. There are instances where borrowers need to go with Conventional versus FHA Loans. Conventional Loans allow Income-Based Repayment on student loans.

As of recently, HUD also allows income-based repayment plans to be used. Prior to this change, HUD required 1.0% of the outstanding student loan balance to be used as a hypothetical debt. Or the borrower needs to get a fully amortized monthly hypothetical payment over an extended term from the student loan provider.

The hypothetical monthly payment over the extended term can be used in lieu of 0.50% of the outstanding loan amount if that amount is lower than the IBR payment and vice versa. The hypothetical monthly payment over the extended term can be lower than the IBR payment of the outstanding loan amount if the borrower has higher income. Not all lenders will take the hypothetical monthly payment over the extended term. Large outstanding student loans are one of the biggest barriers in homebuyers qualifying for a mortgage. 

How Fannie-Mae-Freddie Mac Exempt Debt Guidelines Mortgage Process Work

How Fannie-Mae-Freddie Mac Exempt Debt Guidelines Mortgage Process Work

Gustan Cho Associates at Loan Cabin Inc. has no overlays on Fannie-Mae-Freddie Mac Exempt Debt Guidelines.

Here is how Fannie-Mae-Freddie Mac Exempt Debt Guidelines works:

  • The borrower with monthly debt on the credit report can have that debt exempt if someone else is paying for it
  • The debt can be exempt only if the borrower can provide 12 months of canceled checks and/or bank statements from the person making it
  • Many borrowers have their parents pay for their student loans and auto loans

As long as their parents can provide the borrower with the past 12 months of timely payments on their student loans and/or car payments, that debt is exempt from DTI Calculations.

Qualifying For Mortgage With Direct Lender With No Overlays

Homebuyers who need to qualify for a mortgage with a national 5-star direct lender with no overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] We have zero overlays on government-backed and conventional loans. The Team at Gustan Cho Associates Mortgage Group is available 7 days a week, evenings, weekends, and holidays.

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