via What does debt to income ratio mean for a Mortgage Loan Approval in Kentucky?
When it comes to getting approved for a Kentucky Mortgage loan, lenders will look at your current gross monthly income versus your current debts to qualify up to your maximum spending limits for a mortgage loan. Also called your dti or debt to income ratios.
There are two ratios they use: Front end ratio and back-end ratio
The first ratio is measured using your new house payment, taking into account your principal and interest payment, property taxes and home insurance premiums along with the mortgage insurance. That ratio typically needs to be less than 1/3 of your gross monthly income to fit most KY mortgage programs for FHA, VA, USDA and Fannie Mae guidelines.
I have attached below a picture with a general overview of qualifying ratios for a Kentucky Mortgage loan approval when it comes to income vs debts or debt to income ratios.
Debt-to-Income Ratio Guide for Kentucky FHA, VA, USDA and KHC Loans:
| Acceptable Ratios | ||
| Housing | Debt to Income | |
| Conventional | 28% | 41-50% |
| FHA | 29% | 41-56.5% |
| VA USDA/RHS KHC |
29% 29% 40% |
41-65% 41-45% 50% |
| Higher ratios may be accepted with compensating factors: low loan value, large cash reserves after closing, high credit scores, etc, | ||
So for example, let’s say you make $3000 gross a month, then your max house payment on the new loan would equal about $1000 for your new house payment.
Your current rent payment, utility bills, car insurance, cell phone bills, don’t go into account when figuring your max ratios.
The second ratio, called the backend-ratio measures your new house payment, plus your current monthly debts listed on the credit report. Most Kentucky Mortgage programs will want to cap this at 45% to 50%, with some going a little higher with compensating factors.
For example, let’s say you make $3000 gross a month, and your new house payment is $1000, taking you up to your max limits on the front end ratio of 1/3. and let’s say you have a $300 car payment, $100 in credit card payments and $150 student loan payment.
What is your maximum qualifying house payment with a back-end ratio of 50% with the current debts above? Let’s look at the math: Take $3,000 x 50% =$1,500 — this is going to be your max limits on the backend ratio with new house payment and current debt load. So let’s see what this amounts to:
($1500-$300-$100-$150=$950)
So if we take the $1500 minus your current monthly bills on the credit report, this is going to equal a max house payment of $950. As you can see, even though the front end ratio allows for $1000 max house payment, the back-end ratio is going to be $950, so you would go with the lowest of the two.
If you pay or receive child support or child support this can be added or deducted to affect your max qualifying ratios for a mortgage loan, along with 401k loans.
As stated above, car insurance, cell phone bills, current rent payments, utility bills, insurance, does not come into play when qualifying for a max mortgage loan approval.
Curios about how much you would qualify for a mortgage loan in Kentucky?
Call, text or email me your questions and I would be glad to help you.
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