The market has shifted gears and underwriters are reverting back to traditional methods of qualifying home buyers. A borrowers debt to income ratios is one of the most important factors in qualifying for a home loan. Debt to income is a formula that involves calculating a borrowers total  monthly debt payments divided by their monthly gross income to provide a ratio that guides an underwriter. This ratio does not include items such as utilities, auto insurance, groceries, etc. On government backed loans such as FHA mortgage most underwriters will not approve a loan if the debt to income ratios exceed 43% and on conventional loans, even ones that are approved via desktop underwriter, a computer based program that works with Fannie Mae guide lines the debt to income ratios can not exceed 60%. After seeing millions of homes go into foreclosure over the past twelve months, as a home buyer why would you want to exceed 40% for your debt to income ratios. This leaves little financial flexibility in the future and is a key reason to why home foreclosures have surged.

6-13-2008 ©LowRateMortgage.com

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