DTI per Freddie and Fannie

[frugalQ]

our loan is through fannie mae...i have no idea about freddie mac  this is an excerpt i found from their seller's guide.  it does not mention DTI ratios for automated approvals, but it does state specific DTI ratios for loans that have to go through manual underwriting.  you can also click on this link and then click on the AllRegs Guide...it provides all of freddi mac's requirements.  http://www.freddiemac.com/singlefamily/guide/?tog=current  underwriting criteria starts at chapter 37.

Evaluating debt ratios

Loan Prospector calculates and evaluates the Borrower's qualifying ratios. For Accept Mortgages and A-minus Mortgages, Loan Prospector has determined that the Borrower's qualifying ratios are acceptable.

For Manually Underwritten Mortgages, the Seller must evaluate the Borrower's ability to pay the monthly housing expense and other obligations. When the Borrower's monthly debt payment to income ratio exceeds 45%, the loan is ineligible for sale to Freddie Mac. As a guideline, the monthly debt payment-to-income ratio should not be greater than 33% to 36% of the Borrower's stable monthly income.

When the Borrower's monthly debt payment-to-income ratio exceeds 36%, the Seller must document in the file the justification for the higher qualifying ratio.

[frugalQ]

for home buying purposes, only 75% of your rental income is counted as income for DTI purposes.  so, if your rent is equal to your mortage, you will still need to count 25% of yoru mortage payment as a 'debt payment'.

[frugalQ]

also CS...i seem to remember you posting something about student loans being deferred.  for conventional mortages, all loans (included deferred loans) are included in DTI calculations.  if your deferred loan does not have a monthly payment amount on the credit report, the lender will probably use 2% to come up with a monthly payment amount.

i found the freddie mac loan prospectus matrix...loan prospectus is the automated underwriting system for them.

http://www.freddiemac.com/learn/pdfs/uw/docmatrix.pdf

[StartingOver10]

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@frugalQ wrote:

for home buying purposes, only 75% of your rental income is counted as income for DTI purposes.  so, if your rent is equal to your mortage, you will still need to count 25% of yoru mortage payment as a 'debt payment'.

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^^^Yes, this is right. it can't be a wash unless you collect more than what it actually costs you. Because you charge the same as your payment and the lender will only use 75% of the income (the other 25% is considered 'vacancy and collection costs') there will be a net liability added to your payments (you DTI increases).  This may be part of the reason your DTI is showing as 47%.

You can't get out of the 25% v&c costs imputed to your rental - even if there is no vacancy or collection. It is part of the guidelines.

[ShanetheMortgageMan]

55% max for Freddie Mac's automated underwriting system, called Loan Prospector (LP).

50% max for Fannie Mae's automated underwriting system, called Desktop Underwriter (DU).

Manually underwritten loans are subject to lower debt ratios, but very few lenders will manually underwrite a Fannie or Freddie loan, so 99.99% of people wouldn't run into those lower debt ratio limits.

Getting a debt ratio over 45% approved through automated underwriting will take a special type of borrower.  In the past the borrower I've gotten approved over a 45% debt ratio have had excellent credit & a lot of reserves (at least 12 months PITI).  It also will improve your chances if you have had past on time mortgage payment history reporting to credit, put 20% down, and take a loan term less than 30 years.

For reference FHA TOTAL will approve up to 46.99/56.99% ratios.  VA's automated underwriting has no limit on debt ratios (residual income is what it pays attention to).  USDA's GUS will approve up to 34/46%.