FHA DTI Requirements Mortgage Guidelines And Overlays
This BLOG On FHA DTI Requirements Mortgage Guidelines And Overlays Was UPDATED And PUBLISHED On June 9th, 2020
Update On FHA DTI Requirements:
FHA DTI Requirements are probably the most generous out of all mortgage loan programs.
- DTI, Debt To Income Ratios, is the sum of all borrower’s monthly payments divided b gross income. All mortgage loan programs have debt to income requirements
- Conventional Loans DTI Requirements are capped at 50%
- There is no front end debt to income ratio on conventional loans unlike FHA Loans
- Front end debt to income ratios are the principal, interest, taxes, and insurance ( PITI ) divided by the monthly gross income
- FHA DTI Requirements for borrowers with under 620 Credit Scores are capped at 43% DTI to get an approve/eligible per automated underwriting system
- FHA DTI Requirements for borrowers with credit scores of 620 and higher is 56.9% back end debt to income ratios and 46.9% front end to get an AUS Approval
In this article, we will discuss and cover FHA DTI Requirements Mortgage Guidelines And Overlays.
What Are FHA DTI Requirements On Manual Underwriting
There are cases where an FHA mortgage loan application cannot get an approve/eligible per automated underwriting system and will get a referred/eligible per automated underwriting system.
- A approve/eligible per automated underwriting system is an automated approval
- A referred/eligible per automated underwriting system means that the automated underwriting system cannot render an automated approval but the file is eligible for an FHA loan approval if it is done manual underwriting
- Manual underwriting is when a mortgage underwriter needs to manually underwrite the mortgage loan file
- The underwriter will carefully look at the borrower’s credit, credit history, credit scores, past collection accounts, public records, income, liabilities, and assets
- The mortgage underwriter will look at the risk level of the file
One of the things that the underwriter will be looking for is compensating factors.
Importance Of Compensating Factors On Manual Underwriting
Compensating factors are positive factors that strengthen the borrower such as the following:
- borrower having assets such as reserves
- larger down payment
- verification of rent
- other income that is not used in income qualification
- longevity in field
- working in fields such as the medical industry or having government jobs
FHA DTI Requirements On Manual Underwriting is at the discretion of the mortgage underwriter:
- I have gotten many FHA manual underwriting files approved and cleared to close by our mortgage loan underwriters with debt to income ratios of up to 50%
- This is due to the borrower having strong compensating factors
- All manual underwriting files require verification of rent, often referred to as VOR
- Verification Of Rent is when a renter pays their rent payment with a check for the past 12 months
- Needs to provide 12 months canceled checks and/or 12 months bank statements showing the rental payments being transferred from the renter’s bank account to the landlord bank account
No late payments on rental payments are allowed for the past 12 months for the verification of rent to be valid.
Why Do Lenders Have Different FHA DTI Requirements
Homebuyers with high debt to income ratios and are shopping for a mortgage, may encounter that most lenders have different DTI Requirements. The reason being is due to mortgage lender overlays on debt to income ratios. There are two different categories of FHA DTI Requirements. There is the actual FHA minimum debt to income ratio requirements which is 56.9% DTI. There is the individual mortgage lender’s debt to income ratio requirements, which is called the mortgage overlays or additional requirements on top of the minimum federal debt to income ratio requirements which is the lender overlay on DTI. Most banks have FHA DTI Requirements of 45%. Most mortgage lenders will cap the FHA DTI Requirements at 50%. Borrowers with higher debt to income ratios and need to go as high as 56.9% debt to income ratio in order for you to qualify for an FHA loan, they would need an FHA mortgage lender like us with no lender overlays on FHA debt to income ratios. We do not have any overlays on debt to income ratios or any other lender overlays on FHA Loans. If you have high debt to income ratio or need an FHA Lender with no lender 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 are available 7 days a week, evenings, weekends, and holidays.