Ingrid B. Quinn

NMLS ID #211652 Arizona, Loan Consultant


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How Much Can I Qualify For? DTI, What is it?

canada-cut-interest-rateIf you talk to a lender, they are going to drill down to the 4 most important aspects of your loan when trying to purchase or refinance a home. What do you make, Who do you owe, How much cash do you have to work with and What is the property value?
I am going to focus this blog on the numbers involved in qualifying income and what the rules are to get someone an approved loan. Growing up in the mortgage business, I learned the rule of 28/36. Back in the 80s those were important numbers. What do they mean? They stand for the debt to income (DTI) ratios that lenders use as a basic qualifying guideline.
28% of someone’s gross monthly income (or determined self employed income or passive income of some kind) could be tied up in housing expense. That includes principal, interest, taxes, insurance, HOA/condo fees, and possible 2nd mortgage, if applicable. 36% of your income could be tied up in total debt. That includes house expense plus monthly debt like car payments, student loan debt (see Student Loan blog) or credit card payments.
Now, we hear how the mortgage market has tightened up, but the ratios we work with have relaxed over the years surprisingly. It is not uncommon to see ratios in the 35/45 range or even 35/55. Different types of loans, such as FHA, Conventional, VA or Jumbo have different thresholds for approval. You will see more flexibility when the quality of the loan is stronger. Larger down payments, high credit scores and/or cash reserves after closing are all qualities that could command a lower risk loan and therefore allow a higher DTI.
Many loans are run through automated underwriting systems such as DU (Desktop Underwriter) or LP (Loan Prospector) that measure the risk of a loan. Lenders take those results and continue to process the loan if an acceptable response/approval has been received. Knowledgeable loan officers and processors can work with these systems and try to figure what characteristic of the file may need to be improved to reach an acceptable response. Then the loan officer will be able to tell the borrower how much of a loan they are qualified for.
For further questions or suggestions, please feel free to email me at Ingrid.Quinn@cobaltmortgage.com or visit me at http://www.ScottsdaleMortgageExpert.com or http://www.CobaltMortgage.com/IngridQuinn.