Debt-To-Income Ratios For The Major Loan Programs
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.
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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
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