VA Loans: Debt-to-Income Ratio (DTI) Limits

How does Debt to Income Ratio (DTI) work?

Your Debt-to-Income Ratio (DTI) tells lenders how heavy your debt is and can help predict whether you’ll be able to make your monthly mortgage payments.

How DTI is calculated

DTI is easy to calculate. First, add up all your monthly debt payments. Do not include recurring expenses such as electricity or groceries. Then divide your total monthly debt by your total monthly income. End with a decimal number. Multiply by 100 to get the DTI ratio as a percentage. For example, a DTI calculation of .43 × 100 = 43%.

What is the DTI good to have when applying for a VA mortgage?

Ideally, lenders love to see applicants with a DTI of around 36% or less. In general, conforming loans (mortgages made by private lenders and later sold to Fannie Mae and Freddie Mac) cannot exceed her DTI of 45%. A 45% DTI requires applicants to meet stringent credit score and down payment requirements.

As a general rule, lenders are reluctant to lend to buyers with a DTI greater than 50%. VA loans may be an exception to this rule.

Housing costs vs. Overall DTI: What’s the difference?

Another metric that lenders consider in addition to their overall DTI is the housing cost rate. This is calculated by adding up your housing costs alone and dividing it by your monthly income. For renters, it’s just the rent. For homeowners, it includes PITI, or principal, interest, property taxes and homeowners insurance premiums.

Some lenders refer to a widely accepted rule of thumb for housing affordability called the “28/36 rule.” This rule states that he spends 28% of his monthly gross income on housing and no more than 36% of his total debt, including student loans, car payments, and credit card debt, when applying for his VA mortgage. applies to persons

If you live in an expensive area of ​​the United States, these guidelines are likely to be unrealistic, and most lenders don’t know how much you can afford to maintain a low debt-to-income ratio, especially in this era of inflation. I know how difficult it is.

If your credit score is between 580 and 619, Rocket Mortgage® requires a housing rate of 38% or less and an overall DTI of 45% or less. In most other cases, eligible DTI is based on what the VA underwriting system approves, unless there has been a previous bankruptcy or foreclosure.

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