Hi Everyone- I have posted a couple of time but usually just lurk but I have a couple of questions about the loan process.
1. I have researched online that the DTI ration should be no more than 25% front-end and 36% back-end. Is this DTI standard for conventional mortgages as well? Also I took a loan out on my 401k last year when I was going through a divorce and am currently paying back the loan (taken from my pay) $112 monthly. Will this monthly loan payment be included in my back-end DTI when applying for a loan?
2. I have also seen mention that the banks these days require reserves when applying for a mortgage. Is there a certain amount of reserves (exclusive ot the down-payment) that you a required to have liquid when applying?
1 No you are paying yourself back so it wont count
2 - it depends on the program
FHA VA USDA do not require reserves
for conventional they like to see a minimum of 2 months worth of mortgage payment
if it is an investment then I believe it is 6 months reserves
The DTI amounts you listed are very conservative you can get financing with higher DTI than that
FHA prefers 31/43% ratios, but up to about 45% & 57% can qualify. USDA prefers 29/41%, but up to about 38% & 49-50% can qualify with good credit & some reserves. VA prefers 41%, but even into the 60's can qualify, although most lenders cap out at about 50-55%.
Fannie Mae can approve up to 49.99%, Freddie Mac can approve up to 55%, but anything above 45% requires excellent credit & a lot (6+) of reserves.
Shane- thank you for the info! I estimate that my DTI will definitely be on the lower side around 23% front end and 34% back end. But it's good to know that the DTI is flexible.