2016 FHA DTI Ratios On Manual Underwrites

Are There FHA DTI Ratios On Manual Underwrites?

Debt To Income Ratios  is one of the most important factors when qualifying for a mortgage loan. Debt To Income Ratios, also known as DTI, is the sum of all monthly minimum monthly payments including the proposed principal, interest, taxes, insurance (P.I.T.I.) of the new property divided by the borrower’s monthly gross income. Mortgage loan programs have their own maximum debt to income ratio limits. 2016 FHA Guidelines On Debt To Income Ratios is capped at 46.9% DTI Front End and 56.9% DTI Back End for FHA Borrowers With Credit Scores of 620 FICO or higher. For FHA Borrowers With Under 620 FICO Credit Scores the debt to income ratio caps on FHA Loan gets drastically reduced to 43% DTI total. There are no front end debt to income ratio caps on FHA Borrowers With Credit Scores Under 620 FICO .  FHA Borrowers With Under 620 FICO credit scores are classified higher risk borrowers and will yield a higher mortgage rates and verification of rent may be required by Fannie Mae Automated Underwriting System .

With 2016 Conventional Loan Guidelines On Debt To Income Ratios the maximum debt to income ratio limits is capped at 45% DTI if you want to get an approve/eligible per DU FINDING or LP FINDINGS . On this article we will talk about FHA and Conventional Loans and its debt to income ratio requirements.

FHA DTI Ratios On Manual Underwrites: What Is Manual Underwriting?

FHA permits manual underwriting on FHA mortgage loan applications that cannot get approve/eligible per DU FINDINGS and gets a referred/eligible per DU FINDINGS or FHA mortgage loan applications that needs to get  downgraded to a manual underwriting. Not all FHA approved mortgage lenders do manual underwrites. Manual Underwriting is when a FHA mortgage underwriter manually underwrites a FHA mortgage loan applications instead of going by the Fannie Mae Automated Underwriting System, or AUS. There are mortgage loan applications that must be manually underwritten. For example, all FHA Loans After Chapter 13 Bankruptcy Discharge that has less than two years after the Chapter 13 Bankruptcy discharge needs to be manually underwritten. With all manual underwrites, verification of rent is mandatory. Verification Of Rent is only useful and valid when the renter can provide 12 months canceled checks that he or she had paid the landlord and/or 12 months bank statements proving that the funds have been transferred out of the renter’s bank account into the landlord’s bank account and has been timely for the past 12 months with no late payments. If the renter has been paying cash to the landlord and gets a cash paid receipt by the landlord, that does not count for verification of rent purposes. Mortgage Borrowers has to understand that cash money does not count in the mortgage industry. All income, deposits, and receipts needs to be documented by canceled checks and cash deposits cannot be used for income qualification and credit qualification purposes. With manual underwriting, the FHA mortgage underwriter has a lot of underwriter’s discretion and the FHA mortgage underwriter will look for compensating factors. Compensating Factors are positive factors that give the mortgage borrower strength such as reserves, additional documented income such as part time income, bonus income, overtime income that the borrower has but was not used as qualifying income. Larger down payment and higher credit scores are strong compensating factors. FHA mortgage loan borrowers who are in the health care fields, employed by government such as law enforcement officers and fire fighters and school teachers with job longevity is considered compensating factors because the demand of employment in those fields. Multiple jobs and gaps in employment are considered less than favorable factors and the mortgage underwriter will take that into account when underwriting a manual underwrite.

FHA DTI Ratios On Manual Underwrites: Is There A DTI Requirement On FHA Manual Underwrites?

Unlike the automated underwriting underwriting system, there are no debt to income ratio requirements and caps on FHA Manual Underwrites. Most FHA mortgage underwriters like to see a debt to income ratio of no higher than 43% DTI but nothing is set in stone. I have seen a recent manual underwriting borrower get approved with a 53% DTI. The borrower has strong compensating factors such as a second full time job as a nurse. The first job as a nurse, she was with the first employer for over 14 years and started her second full time job as a professor of nursing 18 months ago, however, the second full time job could not be used for qualifying income due to not having two year seasoning. The mortgage loan underwriter saw this as a strong compensating factor and approved the FHA manual underwriting mortgage loan application with a 53% back end debt to income ratio.

If you need a mortgage loan officer that specializes in manual underwriting, please contact Gustan Cho at 262-716-8151 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays to take your phone calls and answer all of your questions on manual underwriting case scenarios or other mortgage loan case scenario questions.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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