Question: >I am thinking about purchasing my first property. Can anyone tell me what >>the acceptable debt ratio is in order for me to qualify?
Lenders use the .28/.36 rule
Your PITI (Principle, Interest, Taxes, Insurance) should not exceed 28% of your income. All your deby combined should not >exceed 36% of your inclome.
This is NOT carved in stone. My wife and I have a loan that exceeds 28% of our inclome but we have low debt so we still >don’t exceed the 36% on the other end.
Answer: It depends on the product and the nature of the lender’s commitment with Fannie Mae or Freddie Mac (in the case of conventional/conforming loans). FHA loans use 29 and 42.000 (interpret this as an absolute limit).
For instance, Freddie’s Affordable Gold may allow for a back ratio in the 40’s, depending on the strength of the loan application and the presence or absence of compensating factors. I’m trying to get one done for a customer right now that has ratios of 22 and 44.5, and the down payment is only 3%.
A ‘large’ down payment will overcome some ratio limitations — all other things being reasonably solid. Also, ‘piggy-back’ loans may accomodate higher ratios.
Non-conforming, jumbo, and portfolio loans have varying ratio requirements.
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