Monthly Income Qualification: Meeting Debt To Income Ratio

Your debt to income ratio is one of the most important factors when it comes to a mortgage approval.  Debt to income ratios are the sum of you monthly obligations divided by your monthly gross income.  The lower your debt to income ratio, the stronger your financial profile is.  There are maximum debt to income ratio requirements for FHA loans and Conventional loans.  For conventional mortgage loans, the maximum debt to income ratio is normally capped at 43% where for FHA loans, the maximum debt to income ratios are capped at 56.9%.  Having a low debt to income ratio is considered a compensating factor so when it comes to mortgage income qualification, the less monthly credit obligation you have the better your chances are for a residential mortgage loan approval.  There are monthly debts that you can eliminate for monthly income qualification where the monthly credit payments can not be counted.

Payments That Can Be Eliminated For Monthly Income Qualification

If you are a co-signer for a loan, that monthly payment that is reflected on your credit report can be eliminated in monthly income qualification if, and only if, you have proof that you are not making that payment.  For example, if you co-signed for a friend or family member on a vehicle and you can provide cancelled checks from the prior 12 months from the friend or family member, that monthly payment can be eliminated from the month income qualification from your mortgage application.  Another example is if you have a student loan and your parents are paying the student loan payments and can provide 12 months cancelled checks from your payments, those monthly payments will not be counted towards the monthly income qualification on your mortgage application.  By eliminating these payments that you are not paying on will lower your debt to income ratios and qualify you for a mortgage loan that you would have otherwise not qualified for.

Deferred Student Loans Can Be Eliminated For Monthly Income Qualification

The Federal Housing Administration allows deferred student loans that have been deferred for 12 or more months not to be counted towards monthly income qualification.  This is for FHA loans only and does not apply for Conventional loans.

Payments under 10 months can be offset from monthly income qualification


If you have a installment debt that has less than 10 months left, that payment can be offset from monthly income qualification.  This is especially common for automobile loans where if your final payoff is 10 months or less, that payment will not be used for monthly income qualification.  This does not apply for automobile leases and only automobile purchase loans.

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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