Financing in Landenberg>Question Details

Sepabuyer, Home Buyer in Landenberg, PA

Will a bank allow your total housing payment (incl. PITI) to be 34% of your income if you have no other debt?

Asked by Sepabuyer, Landenberg, PA Thu Dec 2, 2010

I know the general guideline is 28% of your income for housing and 36% for all debt. If you have no other debt, will a allow your total housing payment to be 34% of your gross income? Also assume excellent credit.

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Yes, up to a 50% debt-to-income ratio is possible with an automated underwriting approval through Fannie Mae or Freddie Mac. However, if you are applying for a conventional mortgage with PMI or private mortgage insurance, 45% with ["compensating factors"] would be the standard.

Hopefully this answer helps you. Please let me know if I can be of further assistance.

Thanks,
Andrew

aluett@luettmortagegroup.com
0 votes Thank Flag Link Mon Dec 6, 2010
Hello Sepa,

Reserves includes cash and 401k IRA . The lender is assuming less of a risk if you have 30 months of mortgage payments in the bank than if you haveonly two. After all, employment is not guaranteed,

In calculating the reserves they use 100% of savings in the bank and only 70% of retirement funds since you will incur taxes and penalties for withdrawing those.

Alan
0 votes Thank Flag Link Thu Dec 2, 2010
Sepabuyer, if you are putting 30% down, and have good credit scores, you probably won't have to worry about reserves. The 45 vs. 50 DTI is more a matter of whether the loan is done as a Fannie Mae or a Freddie Mac. Also, the higher your credit scores, the more likely you are to not have a problem with a higher ratio.
However, you should keep one thing in mind, just because you can get approved with a debt ratio of 50, it doesn't mean that you will feel comfortable making that payment every month. Take everything into account, your other monthly payments, your life-style, what you spend your money on, and come up with an amount that you would like your monthly PITI payment to be.
0 votes Thank Flag Link Thu Dec 2, 2010
Thanks everyone for the responses. It is refreshing to hear from all that this will likely be a-okay!

Alan- I guess I'd forgotten that loan to value is also a factor! For what it is worth, we plan to put around 30% down- maybe 120-130K on a 400-430K property. When you say reserves, does this necessarily mean cash savings, or do other resources (Roth & 401K) factor in, as well?
0 votes Thank Flag Link Thu Dec 2, 2010
Hello Sepabuyer,

Housing payment included principle interest taxes insurance and PMI (if applicable).

You can safely assume that with strong credit you can go to 45% and by exception to 50% with compensationg factors such as lower loan to value or lots of reserves.

Best Regards,
Alan Openshaw
Cornerstone Lending Inc
720 Second Street Pike Ste 104
Southampton
Pa 18966
Office 215 953 0800
Cell 267 992 7276
Fax 215 953 1706
VOTED BEST OF BUCKS 2010
0 votes Thank Flag Link Thu Dec 2, 2010
Yes, this should not be a problem at all. I verified your question with Clare Crossan of PrimeLending in Wilmington, DE who handles a lot of loans for my clients. If you would like to discuss this further, she can be reached at 302-218-5781. Just reference your Trulia questions and she will be happy to assist you.
0 votes Thank Flag Link Thu Dec 2, 2010
Not a problem. I have had home buyers go up to 45% total debt, including their housing expense, and the Underwriter didn't even question it. Call me if you have any further questions. I am a Pennsylvania licensed Loan Officer and can be reached at (866) 552-5912.
0 votes Thank Flag Link Thu Dec 2, 2010
Those are old guidelines that aren't used any more other than by the few who may still do a manual underwrite. 34% housing ratio, especially if you feel comfortable with it, is positively not a problem.
0 votes Thank Flag Link Thu Dec 2, 2010
Yes, this should not be a problem. The best thing to do is contact a lender and get a pre-approval. I have a lender right in my office who I work frequently. You can talk with him over the phone - he'll ask you a few of the basics - he will let you know the maximum sale price you can afford based on your information and what you are comfortable making monthly payments of. He'll then email you an official pre-approval letter, making you a cash buyer and ready to do business in the eyes of any seller. This is a free and no obligation service he does for my clients. Let me know if you'd like him to contact you today. You can call me at 484-459-2147 or email me Lauren@cindydickerman.com anytime.
0 votes Thank Flag Link Thu Dec 2, 2010
yes this should not be a problem. A lender will be able to run your scenario thru an automated underwriting engine to clarify the approval. Please let me know if you would like any assistance w/ this. Thanks,
0 votes Thank Flag Link Thu Dec 2, 2010
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