Debt To Income Ratios
Income and liabilities play a major role in qualifying for a mortgage loan. One of the most important factors besides credit scores are debt to income ratios. Debt to income ratios are your total monthly expenses divided by your total monthly income. There are two types of debt to income ratios. The first is the front end debt to income ratios which are also called the housing debt to income ratios and the second is the back end debt to income ratios which is also known as the total debt to income ratios.
Front End Debt To Income Ratio
The front end debt to income ratios is the sum of the principal, interest, property taxes, homeowners insurance, and homeowners association fees if any divided by the borrower’s total monthly gross income. The back end debt to income ratios is the sum of the borrower’s total monthly expenses which included the housing expenses, automobile loans, student loans, installment loans, revolving debts divided by the borrower’s total monthly gross income. For FHA insured mortgage loans, the maximum allowable debt to income ratios for the front end is capped at 46.9% and for the back end is capped at 56.9% in order to get an approved/eligible per DU Findings.
Debt To Income Ratio For Conventional Loans
Conventional mortgage loans are capped at much lower caps for both the front end and back end debt to income ratios. If you go over the maximum front end and back end debt to income ratio caps, you, as a borrower, will not get an approved eligible by AUS ( Automated Underwriting System ) and will need a non-occupied co-borrower to qualify for a mortgage loan.
FHA allows non-occupied co-borrower to be added to a mortgage loan in the event if the borrower does not qualify for a mortgage loan due to income. A non-occupied co-borrower needs to be a family member or relative or a super close friend who the borrower has known for at least 5 years. You can have zero income as the borrower and if the non-occupied co-borrower has enough income to qualify for your mortgage loan, the deal can still be done. Many times, a borrower’s parents will be the non-occupied co-borrower on the loan. Social security income, pension income, retirement income, alimony income, child support income, royalty income, all can be used as income in mortgage qualification.
Relunctancy On Non-Occupied Co-Borrower
Often times, a non-occupied co-borrower is relunctant in being a non-occupied co-borrower because they feel that the mortgage will deter them from getting a mortgage of their own in the near future. The good news is that as long as the non-occupied co-borrower can provide proof that he or she, as a non-occupied co-borrower, that they are not making the mortgage payments and someone else is, it will not count against their overall debt to income ratios. They need to wait one year and provide proof that the mortgage payments have been made timely by the primary borrower via providing cancelled checks from the primary borrower. Again, it will not affect the non-occupied co-borrower after the primary borrower has had the loan for the past 12 months.
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