Payment and debt ratios have been increased on government-insured loans and child support can now be grossed into their calculations.
The benchmark for payment-to-income and debt-to-income ratios on Federal Housing Administration-insured loans have been respectively raised to 31% and 43% from 29% and 41%, according to a mortgagee letter by the U.S. Department of Housing and Urban Development. The changes for manually underwritten mortgages in which the underwriter makes the credit decision, took effect Wednesday.
The previous benchmarks were promulgated before Congress enacted recent federal tax cuts, which have enabled most borrowers seeking FHA mortgage insurance to increase their buying power and disposable income. Therefore, the new qualifying ratios "will allow a larger number of deserving families to purchase their first home while not increasing the risk of default," HUD said.
In cases where either of the ratios are exceeded, the lender must continue to describe compensating factors used to justify the approval.
For borrowers who qualify under FHA's Energy Efficient Homes, HUD said the "stretch ratios" are increased to 33% and 45%.
The letter also informed that after considerable review, HUD has decided to permit properly documented child support to be grossed up under the same terms and conditions as other nontaxable income sources.