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Behindthecur…, Home Buyer in Los Angeles, CA

How loose are FHA debt to credit ratio requirements? I have a high credit score and want to obtain a loan that is close to my monthly rent payment...

Asked by Behindthecurtain, Los Angeles, CA Tue Jan 25, 2011

I have a high credit score, down payment savings, and am only looking to qualify for a payment that is around what I've been paying in rent for the past 4 yrs. My total debt ratio (including 30% for mortgage) is about 51% and decreasing as I work to pay down debt. I really want to lock in current interest rates. Is there a chance I will still be able to qualify for a loan even though I'm 10% over the limit or do I need to wait until I'm at 41%?

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The back-end DTI ratio compares your total monthly obligations, including the new housing payment, to your gross monthly income. The FHA has a benchmark back-end ratio of 43 percent. Monthly liabilities calculated in the DTI include: auto loans; student loans; personal loans; revolving credit card debt; child support and alimony payments. Typically, the minimum payment on active accounts reflected on your credit report count as part of the back-end DTI ratio.

Web Reference:http://fhamortgageinfo.com/
3 votes Thank Flag Link Wed Jul 22, 2015
I just funded a loan with a 55.9% Debt to Income ratio as a 30yr Fixed rate FHA loan. I would not hesitate to get qualified with a lender today and go shopping for your new home. I agree with the lenders below and that if you have a strong FICO score, some assets in reserve, and excellent payment history on all other debts you should not have a problem with an Automated Underwriting Approval. As Lance mentioned, you and your realtor must be certain that a condo complex is FHA approved and for that reason along with the higher monthly HOA fees in a condo complex I would keep my options open to all types of properties. Good Luck and if you need help, my partner is licensed in California.

Matt Puzz
Licensed Loan Originator
Amerifirst Financial, Inc.
1910 S. Stapley Drive #209
Mesa, AZ 85204
Direct: 602-410-9333
Office: 480-682-6617
Fax: 480-344-3687
NMLS# 213777 AZ LO-0915068
Apply Online: http://www.facebook.com/TheArizonaMortgageExpert?v=app_49497…
1 vote Thank Flag Link Wed Jan 26, 2011
With FHA you can still qualify even past 51%. I've seen FHA approvals go as high as 56.99%. This figure would encompass all current monthly debt obligations along with a proposed housing payment consisting of a principal & interest payment, mortgage insurance, homeowners insurance, property taxes, along with homeowners association dues if applicable. Many FHA purchases from what I have encountered tend to be a 30 year fixed however your purchasing power would increase if you opted for an ARM which is dependent on how long you plan on staying in the home. I would highly recommend getting pre-approved in order to ensure that you're in proper standing prior to submitting offers on any properties of interest.

Best,
Shawn
Web Reference: http://www.bma-loans.com
1 vote Thank Flag Link Tue Jan 25, 2011
I have funded loans with DTI at 50%. With a higher FICO and other compensating factors you may be able to get an approval. The best thing to do is to APPLY and see if you are approved, or if not, what debts, exactly, need to get paid down or paid off to qualify. Don't wait until you find a property and are stuck in an escrow. Get the answers upfront. Our company offers free pre-approvals but there are many lenders out there who can take you through the qualification process.

Regarding the project itself, yes you need the project to be FHA approved.
0 votes Thank Flag Link Wed May 27, 2015
Hi, Behindthecurtain.

FHA DTI limits will change from lender to lender. As a rule, FHA's DTI is 31/43, the 43% being the combination of your mortgage and other credit reporting debt applied against your income. However, again, each lender's limit will vary. For us, with appropriate compensating factors (i.e. credit score, time a job, increased earning potential of profession, credit history, cash reserves after closing costs), you can go as high 55%.
0 votes Thank Flag Link Wed Jan 26, 2011
Your situation illustrates what I always tell buyers: Before shopping for a home, get a letter of pre-approval (not pre-qualification) that will tell you EXACTLY how much you can expect to be able to buy. That way, if you are not satisfied with what you can afford and be approved for, you can, as you suggest, wait a bit and pay down some debt.
Best,
Deborah Bremner
The Bremner Group at Coldwell Banker
REALTOR, 00588885, ABR, CDPE, eAgent, CSP, SFR, HRC, CRE
(O) 310-571-1364 DIRECT
(D) 818.564.6591
http://www.thebremnergroup.com/news/
0 votes Thank Flag Link Wed Jan 26, 2011
I will agree with what all the other loan officers have already stated, and would also like to mention something else, so that others who read this will not be misled, as you apparantly have been.
The majority of loan that are done today are not manually underwritten, but are run through one of the desktop underwriting systems, which will come up with a result such as approve/elligible, or Accept. Sometimes subtle differences in information will make a difference on what is accepted and what is not. There are a handful of lenders who still use the 41% back end. Fannie Mae will go up to 45% back end, Freddie Mac will go up to 50%, and FHA will go higher, although most lenders will cap at 55%. There is a possibility with your amount of exisiting debt, the system won't approve you, but no one would know until they run your information through. By the way, it is debt-to-income ratio they look at. Things that could make a difference are the percentage down, is it 3.5% or 5%, or more. Do you have reserves? Are you planning to use a seller's concession? Don't forget that if you deduct unreimbursed business expenses on your taxes, this will be deducted from your income to qualify you. Also, if you are relying on overtime or bonus income, can it all be used? Is it declining? Have you received it for at least 2 years?

The best thing for you to do is to contact a loan officer and have them guide you in what to do.
0 votes Thank Flag Link Wed Jan 26, 2011
Behind,

You need to speak with a lender who routinely does these loans. Also, if you're planning on buying a condo you should check if the project is FHA approved or not. Most of the newer projects will be, but spot approval is a thing of the past and it could take time before you know if it will be approved. Owners in buildings like this are less inclined to accept FHA financed offers because of this. Talk with your agent/broker for more info and lender referrals.

Best Regards,

Lance King/Owner-Managing Broker
lance@fixedrateproperties.com
415.722.5549
DRE# 01384425
0 votes Thank Flag Link Wed Jan 26, 2011
I would not look at these guidelines as loose or tight, but rather common sense. The general rule of thumb is that you want to fall somewhere between 45% - 50% debt-to-income ratio to have an underwriter comfortable, but even this depends on the other aspects of your file and their relative strength. The good part about FHA is that unlike conventional lending there is a human touch which allows for the underwriter to make a common sense decision when the deal makes sense. With a high credit score and some reserves you should likely be OK.
Web Reference: http://www.loanorama.com
0 votes Thank Flag Link Wed Jan 26, 2011
Hello Behindthecurtain, I wouldn't worry about it too much. If you are a strong borrower you can get financed up to 55% of your debt to limit ratio if your lender or bank allows those ratios. As a Mortgage Consultant, when I take an application from a borrower afetr reviewing their income. assets, credit, etc., I run the information through a system called automated underwriting. It is software created to determine qualified borrowers for Fannie Mae and Freddie Mac. This system can approve you up to 55% DTI (Debt to Income). If you have plenty of savings after closing and good credit, then you have a good chance. If the response came back "Refer", which means a live underwriter needs to review the file, an underwritier can make a determination if they want to override the findings and approve you. Alternately, if you can't get approved for that loan program you can try other progams such as "Flex" or "Mycommunity" which are Fannie Mae programs and allow for higher DTI's. A good Loan Officer will guide you. If when all is said and done you are not able to get approved currently, rearrange some debt or make some changes that would help get that DTI down. There's always a way to make it work! Your Loan Officer can help you.
P.S.> You can have the greatest Loan Officer in the world, but if their company doesn't offer many different loan programs than you may have to make a change to get what you want.
0 votes Thank Flag Link Wed Jan 26, 2011
I agree with Shawn’s response. Lenders today use automated underwriting software engines provided by Fannie Mae and Freddie Mac. After entering loan application data the software determines the credit risk based on the factors input and it responds with either an “accept” or “refer”. With good credit this software will most often be quite liberal in terms of the total debt ratio of a file. You can have your lender take a no-obligation pre-approval application just to see what your maximum qualifying power is on various loan programs.

It’s important to note that the automated software requires documentation to verify the data input by the originating lender. When you go through the pre-approval process I would highly encourage you to ask your lender to review your documentation (i.e. paystubs, bank statements) to make sure the data will be able to be sufficiently verified for the program you choose.
0 votes Thank Flag Link Wed Jan 26, 2011
Have you spoken with a lender? Eventhough my knowledge base with FHA & loans is high, it is best ot get those answers from a lender who is experienced with FHA loans. I have someone who can help you with NO OBLIGATION, but I don't feel good giving advice to someone who is not my current client...but I always defer to the expert in the field of question. Hope you understand.

Good Luck.

Ryan Ole Hass | MBA
The Red Door Group L.A.
Keller Williams Realty Larchmont
ryan@rdgla.com
DRE Lic# 01417826
0 votes Thank Flag Link Tue Jan 25, 2011
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