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What is an acceptable Debt to Income Ratio?

My debt to income ratio is 70%?  Will I still qualify for a loan? What is the cut off for debt to income ratios in order to get a mortgage?
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October 15 2009 - Chollas View
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No, 70% is too high.  I have seen some get approved through DU as high as 57% on FHA loans, however, it is extremely risky to take on a mortgage with a ratio that high unless there is some other compensating factor (other income not being used to qualify for the loan).

Most conventional programs have cutoffs between 41-50% depening on your down payment.
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October 15 2009
Kathy,

It is important to make sure that you are calculating your debt to income ratio correctly.  If you have not already done so I suggest that you have a mortgage professional calculate this for you according to the relevant underwriting guidelines.
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October 15 2009

I have seen files get approved and funded as high as 65, but above that is not possible. 

Do you have other income sources that are not eligible to be used for your loan program?  If your true ratio is 70, you will not be able to afford your payments.

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October 15 2009
I have not seen an Approved Eligible on DU above 57% in the last 60 days unless it was a VA loan.  Justin, have you had one within the last sixty days?

Also, I still believe 57 or 65% is just way too high unless there is other income not being counted, but is stable...like a spouse that is not on the loan or commissions that are not being counted....something, its just needs to make sense.  If a customer insists, I have to do it, but I always advise against it.

With FHA approaching tough times, I would anticipate these guidelines will change in the near future.
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October 15 2009

Bob - I closed a 62 Debt Ratio on a Refi Plus loan about 10 days ago.  580 FICO score.   Lowered existing mortgage $200, seemed like a good loan to me.

Also got approve/eligible at 60 last week for a conventional refinance.  It is a divorce buyout, cannot use spousal support to qualify because not seasoned yet, so has to qualify on base income only.   True Debt Ratio obviously is less and DO found it to be acceptable risk even at 60.

Agree that anything above 45 needs to have compensating factors and is case by case situation....but as far as Fannie is concerned, they are still taking the high ratios for now.  Of course, this will all end December 13th once 8.0 comes out.  

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October 15 2009
Justin, I agree with you that it makes sense for the borrower if its a refinance, but not necessarily for the lender.  Don't take my question the wrong way.  I was just wondering why I have not gotten an approval and thought your's may have been old.  Wasn't questioning your ethics or decision making.  I know you are an ethical LO.

They all kick a refer back to me >50% on conventional (41% if it has PMI or LPMI) and 57% on FHA, so maybe I have credit overlays.
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October 15 2009
Oh, and those two examples were exactly what I meant about compensating factors.... ie. lowering mortgage payment and income that is not verifiable by lender's standards.
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October 15 2009
Not sure if overlays automatically go into the raw findings when you work at a lender that has the overlays.   I have seen the most liberal debt ratios on the Refi Plus, automatic refer above 65, but below 65 it seems to approve.  Makes sense to me since Refi Plus is all about Fannie re-writing the portfolio to increase its performance.

On normal refinance/purchase, most tend to refer above 55, but every once in awhile I see the threshold allow up to 65.  I haven't quite put my finger yet on what component of the overall file allows this.

Agree it doesn't always make sense for lenders....but lets face it, many lenders only care if the loan can be passed-through to Fannie.
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October 16 2009
there are many ways to decrease your debt to income ratio. you can ad the untaxed amt to government income, also known as grossing up. we can exclude some debts off credit, many WAYS! click on my picture to reply
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October 17 2009
Some of them won't even be considered bank fraud!

Auria - try providing good advice rather than trolling for business!
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October 17 2009
50%.
Maybe you should go for a cheaper home.
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October 19 2009
Profile picture for AndreaSmolin
I found this blog post about the maximum debt to income ratio being lowered by Fannie Mae:

"Fannie Mae just announced that they are LOWERING the maximum debt-to-income ratio for all loans underwritten by their automated underwriting system to 45%, and to 50% for loan files that have strong compensating factors (very high credit scores, large cash reserves, etc.). Currently, there is no limit to the maximum debt-to-income ratio when the automated underwriting system is used. We routinely see loans get approved with ratios in the 60% range."

Link to Blog

What do other lenders think about this?
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October 20 2009
The standard is usuallly to have it at around 55% or under. I can currently do loans at 60% DTI. [deleted due to self promotion]
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November 11 2009
Just buy a cheaper home.
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November 11 2009
 
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