Confirm- FHA is highest allowed DTI @ 50%?

17 Replies

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...

I believe I heard that, but it's been awhile since I did FHA. The reason I'm posting is to say that the lender can call that shot as well since FHA is guarantees the loan but it can be repurchased in default as well, usually not but may/can be with direct endorsment lenders. Another issue is that debts scheduled to be paid off in 120 days may not be counted in the ratio. Look at your debts and see when they will be paid off. If you have had credit cards and they are paid off but open the average will be counted unless you close the account. There are ways to show additional income as well if received and shown on tax returns or in a new source where you can show similar income received in the past.

It's better just to talk to your lender and see how your debts can be reduced for qualification, if not now, soon. Good luck...

Yeah, I've got child support and college loans, so nothing that I can makr disappear in the near future. I'm looking at a duplex for a first home. I know we could make the payments without a renter, and with one would be easy... just need to get a bank to see that...

It'll depend on your lender and their overlays, but with the right mitigating factors in place my most aggressive guy will go up to 56% back end DTI through FHA.

@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.

Well no... but a larger down wouldn't hurt.

What we were looking at in the scenario where I saw 56% as allowable was a move up buyer looking to secure purchase financing for their larger home, and conservative rental estimates gave them about $2000/mo NOI on their existing home. They couldn't put this towards their DTI of course, as they didn't yet have 2 years of landlording experience, but as mitigating factors go, it was a pretty solid one. Additionally, they were both self-employed borrowers that had been "aggressive" on deductions.

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.

When you talk about 50% DTI are talking gross or after tax? Never was an FHA guy.

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.

@Account Closed While FHA loans for move up borrowers are not common it can and does happen for example if you purchase your first FHA and you were a single person so you bought a one bedroom condo. You get married and have 3 kids you could get a 3 bedroom or 4 bedroom because youur situation has changed drastically and your currently place wouldn't allow for your new family situation.

However the people you can count with two FHA mortgages are few and far in between because most cannot prove that thier current house doesn't fit the new family situation- You can't get a 3 bedroom and decide to move up in price range and get another 3 bedroom or even a 4 bedroom.

I just had a lender contact me and he said that he has gotten a few uo to 56% recently...

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.

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...

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.)

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....

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.

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

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?

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