FHA DTI Guidelines For An Approve/Eligible Per Automated Findings

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This BLOG On FHA DTI Guidelines For An Approve/Eligible Per Automated Findings Was UPDATED And PUBLISHED On February 3rd, 2020

What are the FHA DTI guidelines for approval / eligibility based on automated arrangements

When a borrower applies for a mortgage application, the borrower will need to disclose income.

  • The income needs to be documented income
  • Loan officers will take the total monthly liabilities of the borrower and divide it by the borrower’s income
  • That will yield the debt to income ratio

FHA DTI Guidelines require that the borrower’s back end DTI be not greater than 56.9% DTI:

  • The front end debt to income ratio not exceed 46.9% DTI to get an approve/eligible per Automated Underwriting System approval

In this article, we will discuss and cover FHA DTI Guidelines For An Approve/Eligible Per Automated Findings.

What Is Debt To Income Ratio?

The income and expense ratio of the borrower is what decides the borrowing power for a home loan.

It is called the the debt to income ratios.

  • Debt-to-Income Ratio, also referred to as DTI, is the sum of all monthly payments of the borrower divided by the borrower’s monthly gross income
  • Debt-to-Income Ratio is a component of the mortgage process that measures a borrower’s Gross Monthly Income compared to their credit payments and other monthly liabilities
  • There are two types of debt to income ratios
  • The front end debt to income ratio is the housing expense divided by the borrower’s gross monthly income

The back end debt to income ratio is the following:

    • Borrowers monthly housing expense plus all other minimum monthly payments divided by the borrower’s gross monthly income

There are actually two different types of Debt-to-Income Ratios underwriters will review in order to determine if a borrower’s monthly income:

  • Underwriters need to determine income is sufficient to cover the responsibility of a mortgage according to the particular lender / mortgage program guidelines

FHA DTI Guidelines For An Approve/Eligible Per Automated Underwriting System automated approval requires a back end debt to income ratio of 56.9% and a Housing front end debt to income ratio of 46.9% DTI.

Overlays On FHA Loans And Debt To Income Ratio

What are the overlays on FHA loans and the debt-to-income ratio

Although FHA DTI Guidelines state that borrowers can have 46.9%/56.9% DTI, most Lenders have their own debt to income ratio requirements that are lower than those of FHA DTI Guidelines.

  • Most lenders require debt to income ratios not to exceed 45% DTI while some FHA Lenders will go up to 50% DTI
  • This is not FHA’s requirement
  • It is lender’s own requirement which is called FHA Lender Overlays
  • Borrower’s who are told they do not qualify for a FHA Loan due to higher debt to income ratios due to the lender overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com.

Gustan Cho Associates has no lender overlays on government and conventional loans.

FHA DTI Guidelines On Front End And Back End DTI

a) Front End or Housing Ratio:

  • Should be 46.9% of gross income
  • Front end debt to income ratios is calculated by dividing estimated monthly mortgage payment by the borrower’s gross monthly income

b)  Back End or Total Debt Ratio:

  • Should be less than 56.9% of borrower’s gross monthly income
  • The Back End Debt To Income Ratios is calculated by dividing the estimated new housing payment plus monthly minimum payments that reflect on credit report by gross monthly income

Debt to income ratios are calculated on gross income before taxes. Income that is used is only qualified income.

Examples of qualified income are as follows:

  • Full-time income
  • Part-time, overtime, bonus, and other income can only be used if borrower’s have two years seasoning
  • There needs to be likelihood to continue for the next three years
  • Child support and alimony income can be used if it will continue for the next three years
  • Rental income can be used if it is declared on borrower’s tax returns
  • Royalty income can be used if it were continue for the next three years
  • Social Security income can be used and grossed up by 15%
  • Pension income can be used
  • Income from second full time job can be used if seasoned for two years

The adjusted gross income is used to calculate debt to income ratios for self-employed borrowers on FHA Loans as well as on most loan programs.  Gustan Cho Associates offers other loan programs where there is no income verification. Bank Statement Loans and stated income loan programs are back. Borrowers who are self employed and show little to no income can qualify for NON-QM Loans where there is no waiting period after bankruptcy and/or foreclosure and no income verification required. For more information, please contact us at 262-716-8151 or text for faster response. Or email mortgage inquiries to gcho@gustancho.com.

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