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Debt-To-Income Ratios For The Major Loan Programs

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

On Monday I wrote a blog titled How Debt-To Income Ratio Are Calculated in which members asked for some further clarification on what are the Debt-To-Income Ratios For The Major Loan Programs?  So I thought it would be good to write a separate blog to answer those questions in depth.

With the creation of the Consumer Financial Credit Bureau (CFPB), 45% Total Debt-To-Income is pretty much the limit.  The exception being FHA which still allows Total Debt-To-Income ratios of as much as 55% or more.  However, two of the major loan program FHA & USDA have two ratios which Borrowers MUST staying under, and staying under the first ratio can be difficult:

  • The first ratio is the Housing Ratio, known as the "Front or Top Ratio"
  • The second ratio is the Total Debt-To-Income Ratio, known as the "Back or Bottom Ratio".

I explained what comprises both of these ratios in How Debt-To Income Ratio Are Calculated.  

NOTE:  Debt-To-Income Ratios are figured off of the Borrowers total gross income (before tax income) if the borrower receives W2 income, and the Net Gross Income (after business adjustments) if the borrower is self-employed.

The Debt-To-Income Ratios for the four major loan programs are:

  • Conventional:  45% Total Debt-To-Income.  Conventional loans only have one Debt-To-Income Ratio, and it is Total Debt-To-Income also know as the Back or Bottom Ratio.  
  • FHA:  45/55+.  FHA has two ratios which the Borrower has to stay under.  45% on the Front/Top Ratio, and 55+% on the Back/Bottom Ratio.  FHA has by far the most liberal Debt-To-Income Ratios of the major loan programs.  However, many Lenders will not go over a 50% Total Debt-To-Income Ratio even though FHA will go much higher.
  • USDA:  29/41.  USDA also has two Debt-To-Income Ratios like FHA, but they are much tighter.  Making USDA a more difficult loan program to qualify for.
  • VA:  Somewhere between 41% to 45% Total Debt-To-Income Ratio.  I say somewhere because the Total Debt-To-Income Ratio will depend on the DU and LP Automated Underwriting Systems.   VA requires the Borrower to have residual income in order to qualify.  Even though theoretically it is possible to get an Approved/Eligible or Accept from the DU and LP Automated Underwriting Systems, it is unlikely DU or LP will give an Approved/Eligible or Accept if the Total Debt-To-Income is much higher 41% because there will most likely not be enough residual income.

I could have just given a quick answer in my previous blog on Monday on what are the Debt-To-Income Ratios For The Major Loan Programs?  But I wanted to provide a little more detail in hope of providing a better answer to the questions asked in my blog How Debt-To Income Ratio Are Calculated.

 

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

Posted by

George Souto
NMLS# 65149

C (860) 573-1308
CALL 7 Days/Wk
Fax (860) 760-6891

Email Me
About Me
My Blog

I am a Mortgage Loan Officer who can assist you with all your mortgage & refinancing needs in
CT, and RI

I can assist you with your Conventional,
FHA, CHFA, VA, USDA, & 203K loan programs.

I reside in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Haddam. E. Haddam, Higganum, Chester, Essex, Deep River.

 

Comments (31)

Pat Starnes-Front Gate Realty
Front Gate Real Estate - Brandon, MS
601-991-2900 Office; 601-278-4513 Cell

George, I memorized these debt to income ratios in the late 1980s when I started selling real estate. The numbers have changed slightly over the years, but thank you so much for writing such a valuable post. Most buyers are unaware of these ratios.

Sep 03, 2015 11:07 PM
Roy Kelley
Retired - Gaithersburg, MD

Thanks so much for sharing this great information for prospective mortgage borrowers and their agents.

Sep 03, 2015 11:27 PM
Mery Fernandez Empire Network Realty Luxury Brokerage
Empire Network Realty INC. - Orlando, FL
The Rise of An Empire, Let's Build Yours!

Hello and congratulations on your featured blog post! Well done and hope to see you have many more featured post.

Sep 04, 2015 12:15 AM
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

George Souto Well done. No more questions. You covered it all very well.

Bill Roberts

Sep 04, 2015 01:03 AM
Nicole Doty - Gilbert Real Estate Expert
Zion Realty - Gilbert, AZ
Broker/Owner of Zion Realty ZionRealtyAZ.com

Absolutely feature worthy and great information for everyone! Thanks for taking the time to write all this out for us! I will definitely bookmark!

Sep 04, 2015 01:30 AM
Lottie Kendall
Compass - San Francisco, CA
Helping make your real estate dreams a reality

I'm glad to see this Featured, George. Good, solid information that is helpful to many - the best type of post.

Sep 04, 2015 01:44 AM
Christine Faeth
The Faeth Team - Ann Arbor, MI
"Helping You Make the Right Move"

Lots of valuable info here. Thanks for posting!

Sep 04, 2015 03:21 AM
Kate McQueen
Realty Associates Texas - Cypress, TX
Tailored service for your real estate needs!

George, I always appreciate your informative posts.  Thanks so much for taking the time to educate us.  It seems like the loan programs are moving targets and it becomes difficult to know which one to aim at!

Sep 04, 2015 04:16 AM
Larry Johnston
Broker, Friends & Neighbors Real Estate and Elkhart County Subdivisions, LLC - Elkhart, IN
Broker,Friends & Neighbors Real Estate, Elkhart,IN

Hi George Souto , Thanks for  clearifying the debt-to-Income for the different programs.  I bookmarked it for reference.

Sep 04, 2015 07:27 AM
Larry Johnston
Broker, Friends & Neighbors Real Estate and Elkhart County Subdivisions, LLC - Elkhart, IN
Broker,Friends & Neighbors Real Estate, Elkhart,IN

I tried to "Like" your blog, but the program won't let me.  A number of the buttons don't work for several members.  The edit button and the home button doesn't work either. Yours is one of them.

Sep 04, 2015 07:30 AM
Noah Seidenberg
Coldwell Banker - Evanston, IL
Chicagoland and Suburbs (800) 858-7917

Interesting and very useful information George. Thanks for putting this together.

Sep 04, 2015 08:26 AM
Debbie Reynolds, C21 Platinum Properties
Platinum Properties- (931)771-9070 - Clarksville, TN
The Dedicated Clarksville TN Realtor-(931)320-6730

I remember one of my VA buyers got approved with over 50% back end ratio. You are right that they had plenty of income and the residual was huge.

Sep 04, 2015 12:59 PM
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

George Souto I used to think VA and FHA almost have similar guidelines. I was wrong - when it comes to front/back ratios, there are different limits for each. 

FHA being most liberal, it's easy for most of the buyers - specially first time home buyers - to go for it.

Sep 04, 2015 01:40 PM
Lisa Von Domek
Lisa Von Domek Team - Dallas, TX
....Experience Isn't Expensive.... It's Priceless!

Hello George Souto 

Another well deserved Featured Post - excellent information that is easy for consumers to understand.

Have a fabulous Labor Day weekend!

Sep 04, 2015 01:43 PM
Mike Tizzano
Amerifirst Financial, Inc Equal Housing Oppurtinity Lender AZ BK0013635 NMLS 145368 LO:1015837 - Mesa, AZ
Protect Your Transaction Certified Lender

In my opinion the only time it makes sense to go to 55% on the FHA back end ratio is if there is other household income that wasn't used in qualifying.  Otherwise you're not leaving much for taxes, auto insurance, child care, utilities, etc.  

Sep 04, 2015 03:13 PM
Scott Thompson

Beat me to it - I was about to say.  How much do you qualifiy for? HOW MUCH CAN YOU STAND TO PAY???  


Generally every 5k is around $35 a month and for most I recommend keeping the mortgage payment around 25% of your gross monthly, otherwise you will hate it.


Just sayin.


Make it a Great Day.

Sep 05, 2015 02:31 AM
Richard Bazinet /MBA, CRS, ABR
West USA Realty - Scottsdale, AZ
Phoenix Scottsdale. Sellers, Buyers & Relocations

That's a good summary George, and thank you for putting them up. I had slightly different numbers, who knows from where now, I'll keep a copy of your article.

Sep 05, 2015 12:42 AM
Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Being cautious and understanding residual income, I want to see some.

I've seen buyers who wanted to buy at the limit of their qualifications.  My question has always been, what if the water heater fails?? 

Sep 05, 2015 02:38 AM
Fred Cope

Lenn, you sound like my dear friend, underwriter, that I lost last year.  She told me often, "I would feel better about this file IF they had savings and a history of saving."  She didn't like seeing newly opened lines of credit recent to time of loan application, and would tell me to caution them to not go buy a new car until they have made a few mortgage payments and had a handle on their spending.  When the Delinquent Reports came from Tennessee Housing & Development, she pulled Credit In-file, and was not a happy camper when they had new debt and were late on the mortgage.  How soon so many lose their new found frugality after closing.

Sep 07, 2015 01:39 PM
Olympus Executive Realty Inc.
Olympus Executive Realty INC. - Orlando, FL
Home Of The Top Producers

Congrats George on your featured blog, hopefully you can keep them coming, topics that are featured take blogging talent!

Sep 05, 2015 04:12 PM
Fred Cope
Reliant Realty in Nashville, TN - Nashville, TN
Looking For Homes With A Smile

George, another excellent post.  It deserves the Feature.

You spoke of Residual Income on VA loans.  I was taught to FIRST do Residual, then calculate TMO.  I still do. I have even used a modified version of Residual Income to sell underwriters on accepting files when they had reservations.  With these low interest rates, I have had wise buyers who chose not to max out ratios, even go 15 year mortgages, and thus not increase their housing expense.  It has allowed me to show, using Residual Income that their RISK is reduced on the new house with Energy Efficient features.  When an underwriter has a comfort level with a loan, they welcome the added justification for taking the loan.  Do you do any traditional underwrites through your lenders?

Sep 07, 2015 01:25 PM
Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Eighteen Years Experience in Brevard County

Great infromation here. It explains a lot about the mortgage approval factors when it comes to debt.

Feb 04, 2016 11:13 PM