How To Qualify With a 50% Debt Ratio

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One of the big selling points for subprime mortgages has been that they allow the ratio of your debt to your income to go up to 50%. For borrowers with a spouse who has a deal killing credit problem but will nevertheless still be helping with the mortgage payments, this has seemed very attractive. They could officially qualify for the home they wanted without having to use the spouse’s income. What many of them didn’t realize is that should have at least tried to use an FHA mortgage.

According to HUD (emphasis added):

FHA encourages all approved lenders to use FHA’s TOTAL Mortgage Scorecard to obtain risk classifications on each mortgage originated under the FHASecure initiative. If TOTAL renders an “accept/approve,” the mortgagee’s underwriter need not perform a personal review of the borrower’s credit history and capacity to repay.

This is referring to the FHASecure initiative, but the same rules apply to every FHA loan. Very often, if you have a 401k, IRA or even a small savings account FHA’s TOTAL Mortgage Scorecard automated underwriting system will give an approval with debt ratios exceeding 50%!

Wouldn’t you at least rather try to get a fixed interest rate at 1% to 3% or more below that subprime adjustable rate mortgage before you take that risky loan?