Mortgage With High Debt To Income Ratio Lending Guidelines
This BLOG On Qualifying For Mortgage With High Debt To Income Ratio Was UPDATED And PUBLISHED On January 3rd, 2019
Debt To Income Ratios is probably the most important factor when it comes to qualifying for a mortgage loan. Qualifying For Mortgage With High Debt To Income Ratio can become an issue no matter which mortgage loan program borrowers choose.
- Debt to income ratio is the total monthly minimum payments divided by the borrower’s monthly gross income
- The result is the debt to income ratio
- Every mortgage loan program has a maximum debt to income ratios allowed
- For example, for conventional loans, the maximum debt to income ratio permitted is 50%
- What this means is that the sum of all of the borrower’s monthly minimum payments including the proposed monthly principal, interest, taxes, and insurance payments of the new home, divided by the borrower’s monthly gross income cannot exceed 50% DTI
- On a case scenario, a borrower who grosses $10,000 per month cannot have monthly total debts exceeding $5,000 per month which includes the borrower’s proposed new mortgage payments and escrows
In this article, we will cover and discuss qualifying for a Qualifying For Mortgage With High Debt To Income Ratio.
Debt To Income Ratio Requirements For Conventional Loans
As mentioned earlier, conventional loan programs limit the debt to income ratio caps to 50% in order to get an approve/eligible per automated underwriting system.
There are two types of debt to income ratios:
- The front end debt to income ratios
- Back end debt to income ratios
The front end debt to income ratios is the monthly principal, interest, taxes, and insurance payments divided by the borrower’s monthly gross income:
- The principal, interest, taxes, and insurance is also referred to as PITI
- There is no front end debt to income ratio requirements on conventional loans
- The back end debt to income ratios is the PITI plus all other minimum monthly payments such as minimum credit card payments, automobile payments, student loan payments, alimony payments, child support payments, and any other monthly obligations that are reported to the credit reporting agencies divided by the borrower’s monthly gross income
- Again, the maximum debt to income ratios required to get a conventional loan approval per automated underwriting system cannot be greater than 50%
Debt to income ratios is also referred to as DTI.
FHA Debt To Income Ratio Guidelines
FHA Loans are much more generous when it comes to debt to income ratios.
- If the FHA loan borrower has credit scores of 620 or under, the maximum debt to income ratio is capped at 43%
- If the mortgage loan borrower has credit scores of at least 620 or higher, then the maximum front end debt to income ratios is capped at 46.9%
The maximum back end debt to income ratios are capped at 56.9% in order to get an approve/eligible per automated underwriting system.
VA Debt To Income Ratio Guidelines
Debt to income ratios on VA Loans depends on the automated findings from the automated underwriting system. The U.S. Department of Veterans Affairs (VA) does not require a minimum credit score requirements. There is no debt to income ratio caps on VA Loans. However, most lenders will require 620 to 640 credit score requirements. Most lenders will cap debt to income ratios on VA Home Loans at 43% to 50%. Gustan Cho Associates Mortgage Group has no overlays on VA Loans. We have no credit score requirements nor DTI caps on VA Home Loans.
- There are cases where debt to income ratios on VA Loans can be as high as 60% debt to income ratios
- This is if the automated underwriting system approves it due to compensating factors and residual income
- To be on the safe side, having a 41% debt to income ratio on VA Loans will yield an almost guarantee automated approval
VA Loans are only for veterans with Certificate of Eligibility papers and VA Loans does not require any down payment.
Qualifying For USDA Loans With High DTI
USDA Loans normally cap debt to income ratios at 29% front end and 41% back end.
- There are no down payment requirements on USDA Loans
- However, there is a maximum household income cap
To qualify for USDA Loans, the property needs to be in a USDA area and borrowers need to meet USDA lending guidelines with regards to credit scores, income, and other lending guidelines.
Mortgage Lender Overlays On Debt To Income Ratios
Just because borrowers meet the maximum debt to income ratios permitted by the particular mortgage loan program does not mean they will be set with the lender.
- Lenders have what they call mortgage lender overlays
- Overlays are additional guidelines set by individual lenders that surpass the minimum federal mortgage lending guidelines
- For example, the maximum debt to income ratios permitted by FHA for borrowers with at least a 620 credit score is 46.9% front end and 56.9% back end to get an approve/eligible per automated underwriting system findings
- However, most lenders may have overlays that may cap the back end debt to income ratios between 43% to 50%
Homebuyers or homeowners needing to qualify for a mortgage with a direct lender with no overlays, please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for faster response. Borrowers can also email us at firstname.lastname@example.org. We are available 7 days a week, late evenings, weekends, and holidays as well to answer any questions and help start the pre-approval process so buyers can be shopping for the home of their dreams.