Qualifying Ratios
Two different ratios are used in most loans:
1. Housing (front ratio)
How to calculate: PITI/Gross monthly income = Housing (front) ratio (28% maximum)(PITI* = Principle, Interest, Taxes and Insurance (total house payment)
2. Total debt-to-income (back) ratio
How to calculate: PITI+Monthly debt/Gross monthly income = Total debt-to-income (back) ratio (36% maximum)
The ratios below should not be considered as the maximum allowable ratios. On a conventional mortgage, a lender may use a higher ratio when there are fully documented compensating factors that justify using the higher ratio and/or the DU/LPA issues the approval.
CONVENTIONAL
28/36 FHLMC
36 FNMA (no front)
FHA
31/43
33/45
VA
41 Back Ratio
They do NOT calculate the front!
Conventional Guidelines
Basic Income
- Salaried employees: Current income as shown on paystubs
- Commission and bonuses: 2 year average
- Part-time, overtime: 2 year average
- Social Security, child support, alimony: Must continue for at least 3 years
Debt
- Installment debt: Loans with payments of more than 10 months remaining will be counted
- Revolving Debt: Revolving charge accounts are open-ended and should be treated as long-term debt and must be considered part of the borrowers recurring monthly debt obligations. If the credit report does not show a required minimum payment amount, you will need to obtain supplemental documentation to validate minimum payments due. FNMA guidelines sate that a lender must use 5% of the outstanding balance as the borrowers recurring monthly debt obligation, if no supplemental documentation is available.
- Legal debt: Child support and alimony will be counted if more than 10 months remaining
- Daycare: Not counted
FHA Guidelines
Basic Income
- Generally calculated the same as on a conventional loan
Debt
- Generally calculated the same as on a conventional loan
VA Guidelines
Basic Income
- VA is very particular in regard to job stability. If a potential borrower has just gotten out of the military, he or she must be employed in the same field or profession in order to use his or her income. If employment in a non-related field, he or she must wait 12 months
- VA is also very strict on job/career changes in the past 12-24 months. If a career change has taken place, generally a 12 month wait is required. Otherwise, income is calculated the same as an FHA loan
Debt
- Calculated the same as on a conventional loans, but daycare is counted
VA does not have a front ratio