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 or visit me at or

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Self Employed Tax Return Policies for Obtaining a Mortgage


The following information is policy for tax returns required for a loan application during the time of year where current year taxes may have been recently filed and the borrower needs to have the income used for qualification on the mortgage application. 2012 last date to file with an extension is October 19, 2013.


Self Employed Borrowers


If income from the immediate prior year’s tax returns is needed to qualify, and transcripts are not available, the borrowers must have a CPA prepared and signed tax return and verification that the tax return was filed with the IRS. An exception for CPA prepared tax returns can be made if the borrower has a history of not using a CPA to prepare tax returns.


Verification that the tax return was filed with the IRS would include:


A letter from the CPA stating that the CPA personally filed the return and confirm the adjusted gross income figure to match the tax return that has been provided (see Affidavit of Filed Tax Returns).

Copies of tax returns stamped “received” by the local IRS office

For self-prepared tax returns (exception described above): other acceptable evidence that the tax returns have been filed such as evidence of electronic filing that also verifies taxes owned or refund due.


Additional documentation must be provided to verify that any taxes owed have been paid (e.g. copy of canceled check) or refund due has been received (e.g. copy of bank statement verifying deposit) to match the tax returns provided.


Note: If the income has increased by more than 20% over the previous year, transcripts for the current year will be required.


In addition a statement from the borrower(s) acknowledging that they will not subsequently amend the returns to negatively impact the income used to qualify is required


Amended Tax Returns


  • Cobalt Mortgage will not accept amended tax returns filed after the date of application.
  • If amended tax returns have been provided by the borrowers that were filed prior to the date of application, transcripts of those amended returns will be required.


For those loans closing after April 15th IRS transcripts for the most recent 2 years will be required. If an extension has been filed with the IRS by the borrower for the immediate preceding year, the two prior years’ transcripts will be required and our Extension policy must also be followed.

For additional information contact Ingrid Quinn at