okay, for a conventional loan to be ‘conforming’, and thus meeting standards for purchase by gov sponsored enterprises in teh secondary market (fannie mae / freddie mac), they must fill several requirements, one of which is ‘monthly payments on the loan must not exceed a certain percentage of the borrower’s income’.
by monthly payments on the loan, do they mean the loan exclusively, or teh combination of loan, taxes, and insurance?
thanks, i’m confused on this…
PITI
Principle, Interest, Insurance, Taxes. In addition HOA fees, Flood Insurance (if required), Mortgage Insurance (if required) and any secondary financing (P&I) are all considered. These are called your front or housing ratio. The remaining non-housing recurring debt is added to this and called your back or debt to income (usually just called DTI) ratio.
what is HOA?
also, do you have an idea of a certain %, roughly, that they are referring to? it doesn’t get specific.
HOA - look it up in the Investing Glossary - upper right corner on this website.
Click H
Or go to the Investing Abbreviations.
Depends on the loan program and the type of underwriting (manual versus automated). There aren’t alot of absolutes in u/w a loan, you have to look at the whole picture of the borrower. We basically have to answer 3 major questions when u/w a file. Do we feel the borrower can and will pay the housing payment? Can we get the loan insured? Can we get the loan sold on the secondary market? If any of those answers is ‘No’ then we don’t approve the loan. But within each of those questions are different guidelines, parameters, or issues we have to document.
Automated underwriting (that is either DU / LP / Emagic / AuCentral or another platform) can give you approvals at various ratios. I’ve seen LP take someone with a 104% DTI. It seems absolutely ridiculous, but the LTV was very low, the reserves good, the credit was pretty good as well.
For HUD insured loans through FHA the manual u/w guidelines are 31% Housing Ratio and 43% DTI, VA is concerned with DTI only and that’s 45% (provided the residual income exceeds guidelines by at least 20%). Conforming Fannie and Freddie products vary by actual loan parameters, but if you’re withing 33 housing and 38 DTI you’re usually ok for most programs.
BTW, HOA = Home owner’s association dues.
okay, i hate to be a pain in the butt, but can you clarify your post a little bit? the terms, abbreviations, and numbers kind of lose me.
your answer appears to contain all of hte information i need to fully understand my question, but i can’t decipher a lot of it
The short answer is if your housing ratio is roughly 31% of your total gross income and your debt to income ratio is 43% or less you’re good for FHA based on the ratio portion of the u/w guidelines. For conventional loans (those u/w to Fannie or Freddie guidelines) the manual guidelines are 33% housing, 38% DTI.
let me see if i get what you’re saying. assuming i make 2K / mo after taxes.
my monthly bills (you said debt. Do you mean total expenses, or expenses paid on debts? like would my insurance payments count?) total, say, $250.
so, does that mean my max monthly payment (insurance, interest, principal, insurance) through a conforming loan would be about $620? If so, how would it change if my monthly expenses (regular expenses, not home related) were $400? woudl it reduce that 31% housing ratio to 23%? (i got that by assuming that since $400 is 20% of my income, so if max debt to income is 43%, i am only allowed 23% more after the 20% i spend on montly expenses, totalling the 43%)
thanks for your answer btw, this is very helpful
nevermind i just read all about this yesterday, definitely clear now…