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FHA LOAN WITH HIGH DEBT-TO-INCOME RATIO
Is it possible to FHA with very high DTI?
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1 Reply
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It is possible to get approved for an FHA loan with a high DTI ratio. Nevertheless, there are some specific conditions and expectations.
Guidelines on FHA DTI
Standard DTI Limits: Regarding the front-end ratio (housing expenses), the FHA prefers a DTI ratio of not greater than 46.9%. The total debt back-end ratio, however, is 56.9%. Those above are easy, fast rules.
Higher DTI Ratios: Some borrowers can qualify with a DTI ratio of up to 46.9% front-end and 56.9% back-end. Offsetting factors include an excellent credit score, substantial cash reserves, and a strong employment history.
Offsetting factors
Some compensating factors that a lender may consider to approve a loan with a high DTI are as follows:
Credit Score: A good credit score tells lenders the borrower is responsible and that owing a high DTI should not be a concern.
Down Payment: A larger down payment reduces the loan amount, which helps DTI and makes lenders less concerned about the high DTI.
Cash Reserves: Excess cash reserves positively affect DTI by protecting the lender, who will trust the borrower to pay the monthly payments even with a high DTI.
Steady Income: Furthermore, earning a steady income, for example, one higher than the median income for that particular area, also reduces the concern of having a high DTI.
Other Considerations
Employment History: A strong work history may support your application, especially if you can establish a regular source of income.
Loan Amount: The loan amount you choose may affect DTI considerations. For example, a loan with lower amounts may be a better option because of a relatively high DTI.
Consult with Lenders
Get Pre-Approved: Talk to various lenders willing to provide you with an FHA loan and check how your financial state complies with their policies. They can offer you details on how DTI and other things are treated.
Shop Around: Different lenders may operate different DTI ratios, so it is good practice to look for these rates on more than one provider.
In cases where a borrower possesses a very high DTI, qualifying for the FHA loan would be more difficult. However, this does not eliminate the possibility of the loan qualifying, especially if strong compensating factors are at play. The one thing that will ensure that you have the best shot at receiving funding is working very closely with lenders who are fully aware of all the requirements that are presented within the guidelines of the FHA. If you have more questions or need assistance, please do not hesitate to ask!