The DTI ratio consists of two components:
total monthly obligations, which includes the qualifying payment for the subject mortgage loan and other long-term and significant short-term monthly debts (see Calculating Total Monthly Obligation below); and
total monthly income of all borrowers, to the extent the income is used to qualify for the mortgage (see Chapter B3–3, Income Assessment).
For manually underwritten loans, Fannie Mae’s maximum total DTI ratio is 36% of the borrower’s stable monthly income. The maximum can be exceeded up to 45% if the borrower meets the credit score and reserve requirements reflected in the Eligibility Matrix.
For loan casefiles underwritten through DU, DU determines the maximum allowable DTI ratio based on the overall risk assessment of the loan casefile. DU will apply a maximum allowable DTI of 45%, with flexibilities offered up to 50% for certain loan casefiles with strong compensating factors.
Fannie Mae makes exceptions to the maximum allowable DTI ratios for particular mortgage transactions, including:
DU Refi Plus and Refi Plus — ratios may exceed 45% except for certain Refi Plus transactions that have a maximum DTI ratio requirement. See B5-5.2-02, DU Refi Plus and Refi Plus Underwriting Considerations, for additional information;
borrowers who do not have a credit score — the maximum ratio may be lower for manually underwritten loans and DU loan casefiles (see B3-5.4-01, Eligibility Requirements for Loans with Nontraditional Credit);
non-occupant borrowers — the maximum ratio is lower than 45% for the occupying borrower for manually underwritten loans (see B2-2-04, Guarantors, Co-Signers, or Non-Occupant Borrowers on the Subject Transaction); and
government mortgage loans — lenders must follow the requirements for the respective government agency.
The total monthly obligation is the sum of the following:
the monthly housing expense of the borrower's principal residence (or the qualifying payment amount if the subject mortgage loan is secured by the borrower's principal residence (see B3-6-03, Monthly Housing Expense));
the qualifying payment amount if the subject mortgage loan is secured by a second home or investment property (see B3-6-04, Qualifying Payment Requirements);
monthly payments on installment debts and other mortgage debts that extend beyond ten months;
monthly payments on installment debts and other mortgage debts that extend ten months or less if the payments significantly affect the borrower’s ability to meet credit obligations;
monthly payments on revolving debts;
monthly payments on lease agreements, regardless of the expiration date of the lease;
monthly alimony, child support, or maintenance payments that extend beyond ten months;
monthly payments for other recurring monthly obligations; and
any net loss from a rental property.
Note: Fannie Mae acknowledges that lenders may sometimes apply a more conservative approach when qualifying borrowers. This is acceptable as long as Fannie Mae’s minimum requirements are met, and lenders consistently apply the same approach to similar loans. For example, a lender might calculate a higher minimum payment on a credit card account than what Fannie Mae requires, which is acceptable as long as the lender consistently applies this calculation to all mortgage applications with revolving debts.
Fannie Mae expects lenders to have in place processes to facilitate borrower disclosure of changes in financial circumstances throughout the origination process and prefunding quality control processes to increase the likelihood of discovering material undisclosed debts. See D1-2-01, Lender Prefunding Quality Control Review Process.
As a result of the lender's normal processes and controls, the lender may need to re-underwrite the loan after initial underwriting. If the borrower discloses or the lender discovers additional debt(s) or reduced income after the underwriting decision was made up to and concurrent with loan closing, the loan must be re-underwritten if the new information causes the DTI ratio:
to exceed 45%; or
if the recalculated DTI ratio does not exceed 45%, to increase by 3 percentage points or more.
In all cases, if the lender determines that there is new subordinate financing on the subject property during the loan process, the mortgage loan must be re-underwritten.
Note: Re-underwriting means that loan casefiles must be resubmitted to DU with updated information; and for manually underwritten loans, a comprehensive risk and eligibility assessment must be performed.
The following steps are required if the borrower discloses or the lender discovers additional debt(s) or reduced income after the underwriting decision was made up to and concurrent with loan closing:
|1||The lender must document the additional debt(s) and reduced income in accordance with
B3-6-01, General Information on Liabilities or B3-3, Income Assessment, as applicable.
Note: The lender is not required to obtain a new credit report to verify the additional debt(s). However, if the lender chooses to obtain a new credit report after the initial underwriting decision was made, the loan must be re-underwritten.
|2||If there is new subordinate debt on the subject property, the mortgage loan must be re-underwritten.|
|3||The lender must recalculate the DTI ratio. For DU loan casefiles, the DTI ratio should be recalculated outside of DU.|
|4||If the recalculated DTI ratio exceeds 45%:
If the recalculated DTI ratio does not exceed 45%, but it increases by 3 percentage points or more:
|6||The final loan application signed by the borrower must include all income and debts verified, disclosed, or identified during the mortgage process.|
|7||Upon delivery to Fannie Mae, the lender must deliver the qualifying monthly income and expense amounts that are on the final loan application. See C1-2-02, Loan Data and Documentation Delivery Requirements.|
These requirements are not applicable to Refi Plus loans with payment increases less than 20% since lenders are not required to calculate the borrower's DTI ratio to determine eligibility. See B5-5.2-02, DU Refi Plus and Refi Plus Underwriting Considerations, for additional information.
For additional information about DU resubmission tolerances, see B3-2-10, Accuracy of DU Data, DU Tolerances, and Errors in the Credit Report.
The table below provides references to the Announcements and Release Notes that have been issued that are related to this topic.
|Announcements and Release Notes||Issue Date|
|Announcement SEL-2016–07||August 30, 2016|
|Announcement SEL-2015–10||September 29, 2015|
|Announcement SEL-2015–06||May 26, 2015|
|Announcement SEL-2015–01||January 27, 2015|
|Announcement SEL-2012–10||October 2, 2012|
|Announcement SEL-2012–07||August 21, 2012|
|DU Version 9.0||July 24, 2012|
|Announcement SEL-2011–13||December 20, 2011|
|Announcement SEL-2011–12||November 15, 2011|
|Announcement SEL-2010–13||September 20, 2010|
|DU Version 8.2||September 20, 2010|
|DU Version 8.0||September 22, 2009|
|Announcement 08-35||December 18, 2008|