Mortgage Loans Chicago With High DTI And Collection Accounts

This BLOG On Mortgage Loans Chicago With High DTI And Collection Accounts Was UPDATED On June 28, 2017

The Gustan Cho Team are experts in originating Mortgage Loans Chicago with no lender overlays on debt to income ratio and collection/charge off accounts. The best loan program in the U.S. for home buyers with higher debt to income ratios and outstanding collections and charge off accounts are FHA Loans. Credit and income in mortgage qualification is probably the two most important factors in qualifying for Mortgage Loans Chicago.

  • If we had to choose between credit and income, income would probably be rated as more important than credit when it comes to qualifying for a mortgage loans Chicago. 
  • The reason why income in mortgage qualification is so very important is because the mortgage lender wants to feel secure that borrowers are able to pay fo new mortgage loan.
  • Home buyers, especially first time home buyers, looking to qualify for mortgage loans Chicago, or info on getting a home loan anywhere – this article will be helpful.

Mortgage Loans Chicago: What is Debt to Income Ratio?

Debt to income ratio is the amount of monthly debt you have divided by your monthly gross income.  There are two types of debt to income ratios.

  1. Front End DTI
  2. Back End DTI

Front End Debt to Income Ratio

The first type of debt to income ratio is known as the front end debt to income ratio. Front End DTI is the housing debt to income ratio.  The housing ratio is which is the principal, interest, taxes, and insurance payments on the new proposed housing payment divided by gross monthly income.

  • Most mortgage lenders want housing debt to income ratio to fall within the 31% housing debt to income ratio.  
  • The 31% housing DTI is not HUD’s requirement but overlays on front end DTI by lenders.
  • FHA and VA mortgage loans have much more lenient housing debt to income ratio requirements of 46.9% front end DTI.

Back End Debt To Income Ratio

The other debt to income ratio is the combined debt to income ratio and it is also known as the back end debt to income ratio.

  • The combined debt to income ratio is the total monthly minimum payments, such as minimum credit card payments, student loans, installment loans, automobile loans, and mortgage loan divided by total monthly gross income. 
  • On most conventional mortgage loan programs, the maximum back end debt to income ratio that is required is 45% DTI. 
  • For FHA mortgage loans, maximum back end debt to income ratio is capped at 56.9%.

Income In Qualifying For Mortgage Loans Chicago

Monthly gross income in mortgage qualification is probably the most important factor that will make or break a mortgage loan borrower.

  • The lower a mortgage loan borrower’s credit score, the lower the debt to income ratio requirement. 
  • Income in mortgage qualification needs to be documented income. 
  • Borrowers who work as waiters or waitress and get paid tips in cash and it is not declared on income taxes, it cannot be counted as income. 
  • Overtime income can be used but a minimum of a two year history of consistent overtime income is required in order to be counted. 
  • Part time income can also be counted towards income in mortgage qualification but need two years history. 
  • Borrowers who just started part time job, part time job income cannot be used as income in mortgage qualification.

FHA Guidelines On Collections And Charge Offs

Mortgage borrowers with outstanding collections and charge off accounts do not have to pay them off to qualify for FHA Loans.

If you are stating income in mortgage qualification, you must make sure that your income is fully documented via pay check stubs, W2s, or tax returns.

Gustan Cho, NMLS ID 873293
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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