Friday, August 28, 2009

What is the Maximum Debt-to-Income Ratio (DTI)?

We are often asked what the maximum allowable debt-to-income (DTI) ratio is for the various types of loans. Here you go:

• For FHA loans, the maximum allowable DTI is 43% if the loan is manually underwritten and it is unlimited if the loan is underwritten through FHA's online underwriting software. We routinely get approvals with DTI's in the 50% - 60% range if the borrower has good credit.

• For VA loans, the maximum DTI is 41% if the loan is manually underwritten and it is unlimited if the loan is underwritten through VA's online underwriting software. Again, we routinely get approvals with DTI's in the 50% - 60% range if the borrower has good credit.

• For conventional (non-government) loans, the maximum allowable DTI is 38% if the loan is manually underwritten and it is unlimited if the loan is underwritten through Fannie Mae's or Freddie Mac's online underwriting software. We routinely get approvals with DTI's in the 55% - 65% range if the borrower has good credit.

We calculate your DTI by adding up all of your new mortgage expenses - principal, interest, property taxes, homeowner's insurance, mortgage insurance, and homeowner's association (HOA) fees. We then add all the monthly expenses that are on your credit report, and divide that total number by your gross monthly income (income before taxes or any other deductions). Example: if your mortgage expenses are $1,000 each month and the total of all the monthly payments that show up on your credit report are $900, then your total expenses are $1,900 a month. If you make $3,800 a month, we divide 1,900 by 3,800 and get your DTI of 50%.

Don't lose out on a deal because your loan is being underwritten manually and the DTI is being restricted. Always use a mortgage broker who uses the online underwriting systems.

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