The difference between a front-end and a back-end debt-to-income ratio for a Kentucky Mortgage Loan FHA, VA, KHC, USDA, Fannie Mae

What is your debt-to-income ratio?

 
Commonly referred to as your “DTI,” your debt-to-income ratio is a personal finance benchmark that relates your monthly debt payments to your monthly gross income.
As an example… Let’s say that your gross monthly salary is $5,000 and you are spending $2,800 of it toward monthly debt payments. In that case, your DTI would be an unhealthy 56%.
This version of your DTI is sometimes referred to as your “back-end” DTI. This is often broken down further to give a front-end debt-to-income ratio, which is a component of your back-end DTI.
 

How to calculate your front-end DTI for a Kentucky Mortgage Loan Approval

 
Your front-end DTI is calculated by dividing your monthly housing costs by your monthly gross income. Front-end DTI for renters is simply the amount paid in rent, whereas for homeowners it is the sum of mortgage principal, interest, property taxes, and home insurance (i.e., your PITI) divided by gross monthly income.
From above, if that $2,800 in debt payments is attributable to $1,500 in housing costs and $1,300 in non-housing costs, then your front-end DTI is $1,500/$5,000 = 30% (and your back-end ratio is still 56%, as calculated above).
 

How lenders use your DTI for a Kentucky Mortgage Loan Approval

 
Kentucky Mortgage lenders typically use DTI (along with other variables) to determine whether or not you qualify for a loan, and to help determine your Kentucky mortgage rate. A high front-end DTI raises red flags with lenders because it is commonly associated with borrower default. In fact, reducing front-end DTI to reduce the risk of homeowner default was one of the main objectives of the loan modification programs introduced by the government in 2009.
There are specific limits for DTI that are used as cut-off points when evaluating borrowers. Current DTI limits for conventional conforming mortgage loans are typically 28% on the front end and 36% on the back end, though these limits are slightly higher for government subsidized Kentucky FHA loans.
While there are certainly other factors to consider w
 
 
 
 
 
 
 
 
 
American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
Louisville, KY 40223
Company ID #1364 | MB73346
 

Text/call 502-905-3708
kentuckyloan@gmail.com
 
 
 
http://www.nmlsconsumeraccess.org/
 
If you are an individual with disabilities who needs accommodation, or you are having difficulty using our website to apply for a loan, please contact us at 502-905-3708.

Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant  Equal Opportunity Lender. NMLS#57916http://www.nmlsconsumeraccess.org/
— Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. The content in this marketing advertisement has not been approved, reviewed, sponsored or endorsed by any department or government agency. Rates are subject to change and are subject to borrower(s) qualification.
 

DEFERRED STUDENT LOANS AND DEBT RATIO CALCULATIONS Kentucky Rural Housing Loans and USDA Loans in KY

DEFERRED STUDENT LOANS AND DEBT RATIO CALCULATIONS  for Kentucky Rural Housing Loans and USDA Loans in KY

 

RHS Student Loan DTIs

 

Due to the variable nature of some student loan plans, RHS is standardizing the process of including them in the debt ratio. All student loans will now require documentation verifying the current payment due.

 

For student loans which are Conventional, Fixed Payment, and/or Deferred:

  • Account statements will be reviewed and fixed monthly payment will be used with no adjustments.
  • Deferred student loans not in repayment will use an estimated payment of 1% of the loan balance unless a documented fixed payment from the loan servicer can be provided.

 

For student loans with Income Based Repayment plans:

  • If the current payment is greater than $100, that payment can be used.
  • If the current payment is less than $100 and total loan balance is greater than $10,000, a minimum $100 payment must be included in the debt ratio.
  • If the current payment is less than $100 and total loan balance is less than $10,000, then the current payment may be used

 

Please note that documentation of an Income Based Repayment agreement must be provided. Payments of $0 are not eligible to be used in the debt ratio. Verifications are only valid for 120 days, 180 days for new constructions

 

DEFERRED STUDENT LOANS AND DEBT RATIO CALCULATIONS

. A 100% 30 year fixed interest rate loan with flexible credit and qualifying ratios along with other benefits, will open the door to a new market and new growth possibilities.

We look forward to a long and productive relationship this affordable housing product to the people of Kentucky and to a strong partnership in the Kentucky GRH Program.

For the USDA Rural Development Single Family Housing Guaranteed Loan Program, deferred student loans should be included in the debt ratio calculations for Guaranteed Loans regardless of the deferment period.

Rural Development RD Instruction 1980-D, section 1980.345(c)(1) states:

“Long term obligations include those obligations . . . with a remaining repayment period of more than 6 months and other shorter term debts that are considered to have a significant impact on repayment ability.”

Deferred student loans are long term obligations with remaining repayment periods of more than 6 months, and they must be included as part of the

applicant‟s recurring monthly debt obligations. If the credit report does not reflect a monthly payment due at the end of the deferment period, the lender may request a copy of the applicant‟s payment letter, or utilize the industry standard of estimating student loan payments as 1% of the loan balance. Therefore a deferred student loan balance of $12,000 should have a corresponding monthly payment of $120 if no estimated payment is verified by the lender.

This guidance applies to all manually

DEFERRED STUDENT LOANS AND DEBT RATIO CALCULATIONS Kentucky Rural Housing Loans and USDA Loans in KY

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