The maximum can be exceeded up to 45% if the borrower meets the credit score and reserve requirements reflected in the Fannie Mae Eligibility Matrix. For manually underwritten loans, Fannie Mae’s maximum total DTI ratio is 36% of the borrower’s stable monthly income. Under federal “ qualified mortgage” standards, your back-end ratio maximum was capped at 43%, although with recent announcements from Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, there is wiggle room case by case Why are the 36%/43%/50% Debt-To-Income Ratio so Important?įor loans to be eligible for sale to Fannie Mae or Freddie Mac, lenders have to follow the guideline set by the GSEs. These include housing expenses, credit cards, student loans, personal loan payments and others. The Back-end DTI ratio measures your income against all your recurring monthly debts. The Front-end DTI ratio measures your gross income from all sources before taxes against your proposed monthly housing expenses, including the principal, interest, taxes and insurance that you'd be paying if the lender approved the mortgage you're seeking. Click To Tweetĭebt ratios for home loans have two components. ($2700 is 38.57% of $7000.) The lower the DTI ratio a borrower has (more income in relation to monthly credit payments), the more confident the lender is about getting paid on time in the future based on the loan terms. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out.įor example, if you pay $2000 a month for your mortgage and another $200 a month for an auto loan and $500 a month for the rest of your debts, your monthly debt payments are $2700. The lower the DTI ratio a borrower has (more income in relation to monthly credit payments), the more confident the lender is about getting paid on time in the future based on the loan terms. This number (reflected as a %) is one way lenders measure your ability to manage the payments you make every month to repay the money you have borrowed. Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income.
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