Is it true that the standard qualifying ratios for FHA and Conventional loans are no longer a static number?

Asked by Pete & Sharon Wristbridge, Burlington County, NJ Fri Jun 18, 2010

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, ,
Sun Jun 20, 2010
Jeff, with all due respect, from all of the answers that Al has given, I see that he is a very experienced and knowledgeable loan officer. So, maybe you need to do a little more checking. On Fannie Mae loans, even if you get a DU approve, if you are over 45 the bank guidelines will say that you cannot do the loan. However, the identical loan, if run through LP, getting an accept, can be sold to a Freddie Mac lender.
Pete and Sharon, what you might be referring to however, is the fact that even if the lender would approve a loan that needs PMI, the PMI company will not allow the ratio to go over 41, where you can get the same loan approved through FHA, and use much higher ratios.
1 vote
, ,
Sun Jun 20, 2010
Just to clarify some of the answers originally given on this post...I'll dive into what Al and Jeff are talking about.

FHA guidelines are 31/43% debt-to-income but will allow you to go over this limit with compensating factors.

Fannie Mae's adjustments to their underwriting engine now limit all loans to be under 50%. This was part of a change that occured last December. Ratio limits for conventional are 45% but can go as high as 49.99% with compensating factors. FYI, 20% down with a 700 fico score was NOT enough to go over 45% on a file I ran lately. When we removed the husband and ran on the wife's credit only who was over 740, it did allow us to go to 49.99%. Conventional loans are becoming much more difficult to stretch ratios.

Currently, on FHA, my DU limitations are under 47% front and 56% back ratios with compensating factors, which confirms the limits that Al had mentioned on his post. Conventional doesn't separate front/back ratio limitations like FHA does right now, but that could change in the future.
1 vote
, ,
Fri Jun 18, 2010
It is a static number BUT you can always go over with compensating factors. Automatic Underwriting Systems (Fannie Mae's Desktop Underwriter-DU and Freddie Mac Loan Prospector- LP) determine if the loan fits those compensating factors. Not only can we go over, but most loans these days are at their limit or over. I even took a poll amongst loan officers across the country and found almost all of their loans are at 43% ratio and higher, which is the total DTI ratio for FHA loans.

http://www.micropoll.com/akira/mpresult/933125-257490
1 vote
Jeff Belonger, , Cherry Hill, NJ
Mon Jun 21, 2010
I shouldn't be saying this on here, but I have been called out. Robin, you are only partially correct. I didn't check to see who you work for, because that is irrelevant in regards to my comment.

Robin, with all due respect, first off, Al never mentioned Fannie Mae. Let me put this in easy terms for you then. I have an investor that will allow for ratios beyond 50% or even over 55%, as long as it is DU or LP approved. You said this to me....

"So, maybe you need to do a little more checking." Because I never talked about the MI restrictions either...

Sorry Robin, but maybe you should do the checking. All I ever said was that higher ratios can be done. Al never mentioned Fannie Mae. My argument in regards to what AL had stated was that you actually have a better chance with ratios over 50% on a FHA loan than a conventional loan. And to debate part of his statement, that conventional loans can go to 50% fairly easy. Huh? Fairly easy? Read below.

Here is what Al said... "I recently got FHA approval with a 56 DTI, and conventional loans can go to 50 fairly easily. FHA generally does not go over 50 either."
0 votes
, ,
Mon Jun 21, 2010
Pete and Sharon, there is one thing that I neglected to mention. In the past 10 years, all we gave for salaried employees were pay stubs and W-2's. Tax returns were rarely required. Now, most lender's will access tax returns from the IRS during the underwriting process. If the borrower deducted any unreimbursed business expenses, they get deducted from their income. There have been times when the disqualifies a person who would qualify on straight income. This is common among, union members in general, especially teachers, anyone in sales, cops (cleaning of uniforms is deductible). If they do not itemize, there is nothing to worry about, but if they do, watch out.
0 votes
Pete & Sharon…, , Burlington County, NJ
Mon Jun 21, 2010
Thank you all for responding, very interesting stuff, I very much appreciate the look behind the scenes. I was under the impression that if the buyer prospect was over the income qualifying ratios it was a non starter. I think the the key today for agents and buyers is to get talking to your lenders early in the process and get pre-approved not just pre-qualified.

Thanks everyone for responding...
pete
0 votes
Jeff Belonger, , Cherry Hill, NJ
Fri Jun 18, 2010
sorry, with all do respect, you have a better chance with higher ratios on a FHA mortgage than you do on a conventional loan. Some investors won't even allow you to go above 45% and some won't allow you to go above 50%.. actually, many won't. There are only a few that will allow you to go above 50% on a conventional loan, even if you have an automated approval. Loan officers fail to realize this. In regards to FHA loans, you just can't say I got x,y,z approved, because you still have front ratios to worry about, assets, job history, credit history, credit scores, etc, etc. Each and every borrower is not the same.

http://activerain.com/blogsview/961054/i-want-that-same-deal…
0 votes
, ,
Fri Jun 18, 2010
I recently got FHA approval with a 56 DTI, and conventional loans can go to 50 fairly easily. FHA generally does not go over 50 either.
0 votes
Jeff Belonger, , Cherry Hill, NJ
Fri Jun 18, 2010
Pete & Sharon,

Not sure what you are truly asking or what you have heard. FHA ratios are 31/43... and it all depends on the compensating factors on what can be approved manually. And depending on the credit scores and assets, I have seen some high ratios approved when uploading the loan and getting a DU or LP approval.

Thanks,
Jeff

Infinity Home Mortgage
Area Manager
609-440-5133
jbelonger@ihmci.com
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