High Debt To Income Ratio
Debt to income ratio is what a mortgage loan underwriter will determine whether or not a mortgage loan applicant qualifies for a mortgage loan and whether they can afford to make their mortgage loan payments. Debt to income ratios are calculated by taking the sum of the borrower’s monthly minimum debt payments, which includes the proposed housing payment ( principal, interest, taxes, insurance also known as PITI ) and dividing it by the mortgage loan borrower’s monthly gross income. That percentage is the debt to income ratio or DTI. Debt to income ratio requirements differ on FHA loans, USDA Loans, VA Loans, Conventional Loans, and Jumbo loans. FHA Loans have the most generous debt to income ratio caps than any other mortgage loan program. Debt to income ratio caps for back end debt to income ratios on FHA Loans is capped at 56.9%. Conventional Loans have a maximum 45% debt to income ratio cap. USDA Loans is capped at 41% debt to income ratio. VA Loans debt to income ratio caps depends on the findings of the Automated Underwriting System.
California High Debt To Income Ratio Home Loans
California home values are much higher than the national norm. Home buyers in California will have higher mortgage payments and housing expenses than homeowners of other parts of the country. Average home prices in California is $365,000 whereas national home values average just under $189,000. California home buyers will need more income to meet mortgage lending guidelines with regards of debt to income ratios. California also has higher FHA lending loan limits and Conventional loan limits than other parts of the country. Maximum FHA loan limits for high cost areas in California is $625,050 where the standard lending limit for FHA loans in average areas are capped at $271,050. Conventional loan limits in high cost areas are higher than the standard conventional lending limit of $417,000.
High Debt To Income Ratio Home Loans: FHA Loans
FHA Loans have the most generous debt to income ratio caps than any other mortgage loan program. Maximum front end debt to income ratio caps for FHA loans is 46.9% DTI. Maximum back end debt to income ratio caps on FHA Loans is 56.9% DTI. These ratios are for FHA home loan borrowers with credit scores of 620 FICO or higher. For FHA mortgage loan borrowers with credit scores under 620 FICO, debt to income ratios are capped at 43%. Manual underwriting also caps debt to income ratios to 43%. California FHA Back to Work Extenuating Circumstances due to an economic event mortgage loans are all manual underwrites and the debt to income ratios is capped at 43% DTI.
Debt To Income Ratio Home Loans: Conventional Loans
Debt to income ratios on conventional loans is normally capped at 45% DTI. There is no front end debt to income ratio requirements on conventional loans.
Solutions To High Debt To Income Ratio Home Loans
If a mortgage loan borrower’s debt to income ratios exceed the maximum allowed, there are a few solutions. Installment debt a mortgage loan borrower is not responsible can be exempt from calculating debt to income ratios. For example, if a borrower’s parent is paying for the borrower’s student loans, the student loan payments can be exempt from the borrower’s debt to income ratios if the borrower can provide the parent’s 12 months canceled checks that the parent has been making the student loan provider. Also, if a borrower is a co-signer on an auto loan or home loan to another person, that loan can be exempt if the borrower can provide they are not responsible for the payment by providing 12 months canceled checks from the person making the actual payments.
FHA allows non-occupant co-borrowers to be added on the mortgage loan of a borrower to qualify for income. Non-occupant co-borrowers needs to be related to the borrower by law, marriage, or blood. Non-occupant co-borrowers will go on the mortgage note but not on title to the property.