DTI Ratio

[Anonymous]

I was reading that they want your front end (any expenses to do with a house) under 36% and your back end (any expenses that don't have to do with a house) under 28%. What if you have very minimal back end expenses. No credit card debt, no car payment, etc. Only food, gas, insurance = $150-$200 a month. Can you make your front end debt (aka your mortgage,taxes, insurance) add up to 36+28= 64%????????

[ShanetheMortgageMan]

For VA's there is only one debt ratio, the total debt ratio (also called the back end), and it's preferred to be at 41%.

For FHA loans there are two debt ratios, the housing ratio (front), and the total debt ratio, and they are preferred to be at 31/43%.

For conventional loans it's 31/43% as well.

For USDA loans it's 29/41%.

In all situations debt ratios can be exceeded if there are enough compensating factors, or if you are able to get an automated approval (which often needs those same compensating factors).  The most common compensating factors would be more than the minimum down payment (in 5% increments), a strong FICO score (depending on other compensating factors just a 620 score might be enough, or you may need much higher, say 680 or above), and having reserves (savings, checking, retirement) still available after closing in the amount of at least 2 times your proposed housing payment.

Front, or housing, ratio is just the housing payment divided by your gross income.  The back, or total, debt ratio is the housing payment + your other minimum payments (credit cards, student loans, car loans, alimony/child support, tax repayment plans, etc.) divided by your gross income.

Message Edited by ShanetheMortgageMan on 09-28-2009 07:04 PM

[Anonymous]

Shane does the same ratios apply for a Heloc or only the 43% back end?

Thanks

[ShanetheMortgageMan]

HELOC's are not all the same, but most require a total debt ratio of no more than 45% and don't specify a housing ratio.

[Anonymous]

Shane thanks for the info.