Special Considerations For Your DTI Ratio And Mortgage
If you’re getting a mortgage, there are several types of loans included in your DTI using the actual monthly payment of the loan or payment amount. These include the following:
- Mortgage payment
- Auto loans
- Personal loans
- Child support
However, there are several types of loans that have special guidelines when it comes to a DTI calculation.
Student Loans In Deferment Or Forbearance
There are many factors that determine how student loans are included in your DTI calculation. The calculation depends not only on the type of loan you’re getting but also on whether the loan is in repayment or in a period of deferment or forbearance.
When the loan is in deferment or forbearance, the following guidelines will apply.
If you’re getting a conventional loan through Fannie Mae or a jumbo loan from somewhere else, we look at the actual payment on the credit report first. If no payment is listed on the credit report or the payment is listed as zero, we qualify you based on you paying 1% of the balance per month.
If that amount is too high for qualification, we can also qualify you using the official payment listed on your statement. The payment can’t be estimated.
If the loan is from Freddie Mac, they use the actual payment on the credit report or qualify you based on 0.5% of the outstanding balance. If it’s not showing up on your credit and you don’t qualify with 0.5% of the outstanding balance, we can also use the official payment from the statement.
For USDA loans, the payment is based on 1% of the outstanding loan balance or $10 per month, or whichever is greater.
For FHA loans, the payment is what’s greatest: $10, 1% of the outstanding loan balance per month or the actual payment shown on your credit report.
The VA makes this easy because their policies are the same regardless of whether your loan is in deferment, forbearance or repayment. The amount included in your DTI is the greater of either the payment listed on your credit report or 5% of your outstanding loan balance divided by 12.
If you had $60,000 in student loans, your monthly payment for your DTI would be $250 ($60,000×.05 = $3,000/12 = $250).
If your loan is in deferment or forbearance and payback isn’t scheduled to begin within 12 months of closing, the VA doesn’t consider it in your DTI.
Student Loans In Repayment
Now that we’ve covered what happens if your loan is in deferment or forbearance, what happens when you’re actually repaying your loan? In that case, the following guidelines will apply.
If you’re getting a conventional loan through Fannie Mae, they use the actual payment on the credit report first. If no payment is listed, 1% of the existing balance is used.
If that’s too high for qualification, we can use the actual payment listed on your statement including all payments from an income-based repayment plan. This includes $0 payments if you have documentation from your loan servicer showing plan approval before you close.
For jumbo loans, the actual payment reporting on credit is used first. If no payment is listed, 1% of the outstanding balance is used. If that’s too high for qualification, they can use the actual payment as long as it’s not $0.
If it’s a conventional loan through Freddie Mac and the payment on the credit report or student loans statement is any nonzero number, the amount from the report or statement can be used. If the payment on the credit report is $0, they use 0.5% of the outstanding balance.
For FHA or USDA loans, you’re qualified with the greater of the following:
- The actual payment on the credit report
- 1% of the existing balance
If you can show documentation that states the payment information statement will pay off the full balance without your payment increasing, this can also be used to qualify for FHA loans and USDA loans.
The VA guidelines are the same as they’d be if the loan was in deferment or forbearance.
When it comes to alimony, there are different regulations that apply depending on who’s invested in your mortgage.
If you’re getting a conventional loan, FHA loan or VA loan, the alimony payment can be subtracted from your income rather than being included in your debts. This could help you qualify more easily.
With a USDA loan or a jumbo loan, existing or agreed-upon alimony payments are considered a debt included in your DTI.
When you qualify for a mortgage, you do so based on the monthly debt payments you have to make. On this basis, you’re not qualified based on the full amount of your monthly credit card balances but rather on the total amount of the minimum payments for your credit card accounts.
Of course, you want to pay as much (if not all) of your credit card balance as you can every month because you’ll reduce the amount of interest you pay or even avoid it altogether. This is also better for your credit score because you’ll be keeping a very minimal credit utilization.