City-Data Forum what is the maximum mortgage? 45% debt/income? (loan officer, approval, credit report)
 User Name Remember Me Password [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.

03-10-2011, 09:21 PM
 Location: Newport Jersey City,NJ 592 posts, read 1,785,082 times Reputation: 304

Hi, does any pro know exactly what is the maximum mortgage you can get? is it 45% debt to income, or 36%? Getting different numbers from different brokers.

I thought it was 45% but apparently that's not being used by all the lenders.

To be clear, i am not asking how much i can afford etc..i am asking what is the maximum mortgage debt/income ratio an underwriter will approve for a conventional 30 year fixed assuming excellent credit and appraisal is fine.

I always thought the formula is: (total income * 45%) - total debt. Whatever is left is your max monthly mortgage payment, and from that I can calculate the max mortgage i can qualify.

03-10-2011, 09:44 PM
 Location: My House 24,783 posts, read 20,805,472 times Reputation: 19613
Quote:
 Originally Posted by gagaliya Hi, does any pro know exactly what is the maximum mortgage you can get? is it 45% debt to income, or 36%? Getting different numbers from different brokers. I thought it was 45% but apparently that's not being used by all the lenders. To be clear, i am not asking how much i can afford etc..i am asking what is the maximum mortgage debt/income ratio an underwriter will approve for a conventional 30 year fixed assuming excellent credit and appraisal is fine. I always thought the formula is: (total income * 45%) - total debt. Whatever is left is your max monthly mortgage payment, and from that I can calculate the max mortgage i can qualify.
I'm with 2 credit unions and one is 40%, the other is 41%.

I think they're both pretty flexible, given the current state of the economy and lending in general. I've heard of 36-38% with some of the traditional banks and mortgage companies lately.

03-11-2011, 03:09 AM
 Location: Laguna Niguel, CA 768 posts, read 3,741,005 times Reputation: 451
For conventional, up to 55% with some lenders. For FHA, up to 58% with some lenders.

03-11-2011, 05:54 AM
 Location: Blue Ridge Mntns., NC 8,609 posts, read 11,472,233 times Reputation: 6385
Quote:
 Originally Posted by ShanetheMortgageMan For conventional, up to 55% with some lenders. For FHA, up to 58% with some lenders.

Doesn't leave much to live on. How far out are they lending in CA? 40/ 50 years ?

03-11-2011, 05:56 AM
 Location: MID ATLANTIC 6,808 posts, read 15,226,064 times Reputation: 6566
There's a reason why you are getting so many answers, and it's kind of a "thank you Captain Obvious" answer. Each agency (Fannie and Freddie for conventional) has their own requirements, and then each individual bank/credit union has their additional requirements (called overlays). Fannie came out with an announcement about 6 or 8 months ago that they were reigning in the upper end of their ratios at 45%. There was some language about circumstances to go beyond that mark, but I can tell you from personal experience, it's rare.

There are two methods to underwriting: manual (human) and automated (AUS or DU). Manual underwriting is practically non-existent, but where it does exist, you don't cross the stated ratios for that loan product and/or bank. DU is a different animal. DU reads assets, credit scores, debt patterns and so on. You can have one file with a 44% ratio be approved and the next one at 44% declined. The computer evaluates each file on it's own merits. So when Fannie came out with their memo on pulling back on their ratios, they weren't kidding. I had one file with 300K in reserves declined with a 45.6% ratio. It was an 80% first trust, but the file had a 15% second trust (95% combined loan-to-value). Then again, I had a 20% down file approved at 48% using DU......but....the investor would not accept anything over 45%. Are you starting to see the problem?

Finally, and perhaps the biggest problem, it's a matter of garbage in/garbage out. If the loan officer isn't given exact figures for the automated approval, the approval isn't worth the paper it's printed on. Or, if you declare \$4800 in unreimbursed business expenses on your 1040's, that's \$400 a month we must deduct from your income. Many loan officers don't request tax returns on salaried employees, so this little surprise wouldn't be found until perhaps a week or so before closing.

I call it defensive processing. You need to find a loan officer that is turning over every single rock when you are ready to look. Giving you a ratio to work off of is a good guideline, but there are so many places to get tripped up, prequalifying yourself is a ticking timebomb, especially, when that number is constantly moving and guidelines are changing.

03-11-2011, 09:55 AM
 Location: Newport Jersey City,NJ 592 posts, read 1,785,082 times Reputation: 304
Quote:

I think that's exactly the problem I am having. I have a rental income. So what I do is bundle up all my debt including those from the rental as 1 number, then give my salary # on the W2 + the monthly rental income. But i am getting all sorts of numbers that differ as much as 150k. I dont want to sign a contract only to find out later on i cant qualify and on the other hand if i can qualify for 100k more i would get a 4 family instead of a 2 family as they are much better bang for the buck.

So it's very frustrating, and everytime they want to run my credit report.

03-11-2011, 12:28 PM
 Location: Laguna Niguel, CA 768 posts, read 3,741,005 times Reputation: 451
So you have a job where you make salary... salary only? And then you have a (as in 1) rental property?

How long have you had the rental property? Do you claim the rental property on your Schedule E? If so, for how many years?

03-11-2011, 01:27 PM
 Location: Newport Jersey City,NJ 592 posts, read 1,785,082 times Reputation: 304
yes. I have the rental for 4 months with 4 rent payment, also have the 1 year lease contract the tenant signed.

03-11-2011, 03:23 PM
 Location: Laguna Niguel, CA 768 posts, read 3,741,005 times Reputation: 451
Even though FHA, Fannie, Freddie, etc. permit using rental income off the amount listed on a rental or lease agreement, minus the applicable expense ratio (10-25%), lenders overlays will require you have 2 years of landlord experience, demonstrated by 2 years of tax returns reporting rental income. That may be why you are getting a max sales price figure so much lower than you anticipate, since you perhaps are using the rental income at face value... whereas majority of mortgage lenders will hit your debt ratio for the entire rental housing payment without giving you credit for the rental income.

03-12-2011, 10:17 AM
 Location: MID ATLANTIC 6,808 posts, read 15,226,064 times Reputation: 6566
Quote:
 Originally Posted by gagaliya I think that's exactly the problem I am having. I have a rental income. So what I do is bundle up all my debt including those from the rental as 1 number, then give my salary # on the W2 + the monthly rental income. But i am getting all sorts of numbers that differ as much as 150k. I dont want to sign a contract only to find out later on i cant qualify and on the other hand if i can qualify for 100k more i would get a 4 family instead of a 2 family as they are much better bang for the buck. So it's very frustrating, and everytime they want to run my credit report.
How much money do you have to put down (what percent do you want to put down)? And what city/state are you in?
 Please register to post and access all features of our very popular forum. It is free and quick. Over \$68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned. Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.