When it comes to securing a mortgage, one of the key factors lenders consider is your Debt-to-Income (DTI) ratio. This ratio helps lenders assess your ability to manage monthly payments and repay debts. However, DTI ratios can vary based on the loan program and your individual qualifications. Let’s dive into the specifics for conventional, FHA, and VA loans.
For most conventional loans, you can get an automated approval with a DTI ratio of up to 50%. This means that your total monthly debt payments, including housing and other debts listed on your credit report, should not exceed 50% of your gross monthly income.
FHA loans are a bit more flexible, allowing for automated approvals with DTI ratios ranging from 55% to 57%. This makes FHA loans a popular choice for borrowers with higher debt levels or those who may not qualify for conventional loans.
VA loans, available to veterans and active-duty military personnel, can be even more accommodating. We’ve seen approvals with DTI ratios exceeding 60%. This flexibility can be a significant advantage for those who have served our country.
It’s crucial to have a loan officer run your application through the automated system to see what you can get approved for. These automated approvals are dynamic and consider various risk factors, including:
For those with non-W2 income, such as self-employed individuals, overtime, bonus, or commission income, the general rule is to average the income over the last two years. If the current year’s income is less than the previous year, lenders will use the current year’s income. It’s important to note that the income should not decline more than 25% year over year, as underwriters may exclude declining income due to its perceived instability.
If your business has been established for over five years, there is an exception to the two-year rule. In this scenario, automated findings may allow the use of the most recent year’s income. This can be particularly helpful for excluding income from the COVID-19 era, which was challenging for many businesses.
Navigating the complexities of DTI ratios and mortgage approvals can be daunting, but understanding these guidelines can help you make informed decisions. Always consult with a knowledgeable loan officer who can guide you through the process and run your application through the automated system for the best possible outcome.
For precise guidelines, I recommend visiting Fannie Mae’s site and Freddie Mac’s site.
Feel free to reach out if you have any questions or need personalized assistance with your mortgage needs. We’re here to help you every step of the way!
I hope this helps! Let me know if there’s anything else you’d like to add or adjust.
Fannie Mae https://selling-guide.fanniemae.com/
Freddie Mac's site https://guide.freddiemac.com/?gad_source=1&gclid=Cj0KCQjwo8S3BhDeARIsAFRmkONEhnob1XgEq_8Joq7evWVUjJT-w5v4qMNiWWFdLhn2jM8pYs7ShiYaAi4PEALw_wcB&gclsrc=aw.ds
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