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what is the highest debt payments to income ratios that is usually allowed by the average lender?

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March 01 2010 - Westwood
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Fannie Mae and Freddie Mac have historically had a 38% of your w-2 income is the maximum you can spend on all of your combined payments including property taxes, homeowners insurance and HOA fees; if any.

They also entered the sub-prime business allowing people to have payments that go as high as 55%.  This change contributed greatly to the current real estate situation. 

I suggest that you consider payments over 38% are not wise, are unsubstainable, and will not allow you to have any spending money

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March 01 2010
To make matters worse, DTI is calculated on GROSS income, not income after taxes, after insurance, after cafeteria plan contribution, after retirement contribution...What would your DTI be AFTER all of those deductions, if you are already starting at 50%-55% on the gross?  Scary!
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March 01 2010
Profile picture for wetdawgs
We're not lenders, but have always used the philosophy that we would like to be able to afford our home if we had to flip burgers for an income rather than receive professional incomes.     Stretching to max can be a disaster.

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March 01 2010
Profile picture for shapiroamg

If anyone is getting 50%+ then there are two factors that the borrower/homeowner must have: Lots in savings and/or great equity.

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March 01 2010
Profile picture for SoCal_Engr
Clay,

Yeah, that's what I meant. Isn't that what I said?  :-)

Darren,

I agree with Pasadenan. Just because someone will let you go to 55% DTI doesn't mean you should. Remember, people were also allowed to qualify for homes using stated income, no-doc loans and ARMs where they only qualified using the initial rate. Ask some of those folks if they'd like a "do over" on their decision.

When I was doing my initial research (back in the day, before the RE market turned into an ATM free-for-all), it seemed that more traditional numbers were in the neighborhood of 33/44, meaning 1/3 of your gross pay towards the house payment and about 44% towards your total debt service. And, at the time, these were maximums - not advised. The higher your DTI ratios, the more leveraged you are and the more exposed to any adverse financial circumstances. Again, talk to some of the folks who crawled out on that limb and had it cut off behind them when the RE market tanked, their values dropped, and they couldn't refi because they had no equity.
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March 01 2010
Profile picture for Pasadenan
55% sounds pretty scary to me.  I wouldn't want that kind of debt burden over my head.

It sounds worse than slavery.

Can't you get your other debts down to something more manageable?  Can't you find something suitable that is more in your price range?

If you can pay 55% of your income in debt service, than surely you can be putting more money aside in the first place to increase your down payment?
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March 01 2010
Depends on the lender, but we are still going up to 55% on Fannie and Freddie loans.
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March 01 2010
The "average" lender 45.   Some up to 55.
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March 01 2010
Socal, switch that around to mtg payment = front and mtg payment plus other payments = back end ratio 
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March 01 2010
Profile picture for SoCal_Engr
John,

Are you talking back-end DTI?

Darren,

Be aware that there are t DTI (debt to income) ratios that lenders will look at. The "front end" is your current monthly debt, excluding the mortgage payment on the house. The "back end" includes the projected mortgage payments.
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March 01 2010
Typically 45% Debt-to-Income ratio as the highest is a safe bet, but I have seen them as high as 53% lately, and that is only allowed when Fannie Nae's or Freddie Mac's automated underwriting engine approves it.  Some lenders will allow what the automated underwriting engine approves, and some will impose stricter guidelines on their own, superceding what the automated underwriting enc=gine approves.
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March 01 2010
 
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  • Asked by Darren W
  • In Mortgage
  • March 01 2010
Mortgage Rates
 
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