Confirm- FHA is highest allowed DTI @ 50%?

Question

I just wanted to see if anyone can confirm this as being the most up-to-date information. FHA would allow a 50% DTI, and that is the highest option as far as DTI goes? I'm really borderline with a purchase I was looking into. I could probably qualify for better in a few months, but we'll see...

David Beard · Answer

Believe me, I'm not Dave Ramsey, but what you are contemplating  causes me to feel anxiety for YOU.  It can be tempting, but please don't over-reach, going to 50% of gross income is extremely high, even if the underwriters will approve it.  Underwriters will gladly approve loans that leave you zero each month to:  contribute to church/charity, enjoy a stress-free life, take a vacation, etc., you get the point.

Make sure you have your backup plan in place to bail you out if the hoped-for higher income doesn't materialize, and your monthly expenses begin to exceed your income (such as selling a vehicle that has a payment on it, maintaining liquid reserves, etc.).

Sorry, not trying to lecture, but living without financial anxiety is priceless.

Ophelia Nicholson · Answer

Hi Joe,
  The highest DTI option really depends on your credit score. The better your credit score the better your chance of getting away with a higher DTI- I think I may have seen a 50 DTI or 51% DTI scores were probably 680 and above. More often than not I see a max of 41% to 45% and that typically goes along with a 620 to 640 credit score.
The other thing is are there compensating factors like do you have alot of reserves after closing? Have you been at your job for a long time? Are you currently paying rent that is close to what your mortgage would be- These compensating factors can sometimes help an UW approve a loan with high DTI.

Joe Edwards-Hoff · Answer

ooh, one last thing... Another reason I just thought of, with a higher DTI, I might be able to qualify without my wife being on the home. That might work nicely, because she could then apply for another home loan in the future without me being on it.

Is that a kosher idea? (She's fine with it, as long as it helps us out int he long run.)

Account Closed · Answer

Jake:  thanks for your reply.  What you describe makes sense for a conventional loan.  I didn't even know there was an FHA loan for move-up buyers.  I always think of FHA for first time homebuyers or buyers who haven't owned in several years.

Account Closed · Answer

Jake Kucheck  Jake:  can you say what some of the mitigating factors might be get up to 56% DTI. Is it down payment amount?

No offense to the original poster or anyone seeking FHA funds, just speaking from a lending perspective:  3% down and 56% DTI is pretty darn subprime.  Seems really unlikely that the default rates could be anything but high.  I'm going to have to look that up.

Niraj Rana · Answer

Hi
I got high DTI(around 55 - 56%), good credit, tax return and income to prove. Looking into buying a move up primary residence with a purchase price around $515K in San Francisco CA with max 10% down. Current residence does NOT have 30% equity. Can anyone help?

Joe Edwards-Hoff · Answer

Does anyone know if the streamline rehab loan has the same dti requirements?

Dustin Allen · Answer

I have had 56% DTI myself. As Jake said earlier, my situation was pretty similar. I was buying a property for about $320k and I previous home was being rented out with a mortgage payment of $2600. The rental house did not have 20% equity or 2 years on my tax returns so i was unable to use that property as income.

It was approved as the underwriter took a look at the whole situation and was pretty confident with us.

James H. · Answer

I'm kind of surprised about the blanket statements regarding DTI. What if a you take a mortgage that puts you at 56 percent DTI, but it is the same monthly payment that you could find the lowest acceptable rent at?

And if it was for a duplex, one side would be rented most of the time. But the bank won't count that income toward your DTI before you can show two years income taxes verifying it. So you walk in with a higher DTI on your loan app than what you will really have.

Joe Edwards-Hoff, I have student loans and child support as well and it really jacks up the DTI. Plus my wife is still in college. I have all my fingers and toes crossed that she will get a job as a teacher at the beginning of the new school year. I am curious why your side income can't be counted? If you aren't claiming this on your taxes, maybe you should start. You would pay more taxes, but if it got you into more properties, you might have a higher benefit in the long run. I get all my rents in cash and don't have much to write off, but will still be claiming it on my taxes so I can use if for DTI calculations in the future. I only wish I had time to do sidework to make even more cash! Maybe next year when I complete this master's degree that's been sapping all my time....

Joe Edwards-Hoff · Answer

I'm really not too worried. One of my main problems is that I make a good amount of side cash which cannot be counted as income by the bank. And my wife starts back at work in two months... We could wait until then, but I put an offer on a duplex that would be good for us if it went through. And though I am not banking on another tenant in the other half, with one, my contribution to the mortgage would be lower than my current rent.

And it actually turns out that my DTI right now is closer to 43% for what I am looking to get. So, the fact that he said he could go 56% was more for information sake.

Lastly, it's easy to keep contributing to church, just give there first...

Confirm- FHA is highest allowed DTI @ 50%?

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