Your debt-to-income (DTI) ratio measures how much of your monthly income goes toward debts like your mortgage, car payments, and credit cards. Lower DTI ratios show lenders you can handle a mortgage responsibly.
For loans that require manual underwriting, the maximum DTI ratios depend on the number of compensating factors you can provide:
✅ FHA & VA Loans
✅ USDA Loans
If your DTI is higher than these limits, you’ll need compensating factors to improve your approval chances.
The following compensating factors are acceptable for manual underwrites:
Lenders want to see that you have financial security. If you have at least three months’ worth of PITI (Principal, Interest, Taxes, and Insurance) in savings, it can improve your chances of approval.
💡 Pro Tip: Start saving now! The more reserves you have, the stronger your application will be.
If your new mortgage payment is less than or no more than $100 higher than what you currently pay in rent, this shows stability and reduces risk for lenders.
💡 Pro Tip: Compare your future mortgage payment to your current rent. If it’s close, this can be a key compensating factor!
If you have extra income that isn’t included in your mortgage application—such as overtime, bonuses, or income from a second job that you’ve had for at least 12 months but less than 24 months—it can count as a compensating factor.
💡 Pro Tip: If you have extra income, keep track of it! It could help tip the scales in your favor.
Residual income is the money you have left after paying all major expenses. Meeting certain residual income thresholds can be a strong compensating factor, especially for VA loans.
💡 Pro Tip: Budget wisely! Making sure you have enough residual income can improve your approval chances.
If you’re thinking about buying a home, here’s how you can prepare now to improve your approval odds:
✔ Work on Your Credit – The higher your score, the better. If your score is low, compensating factors will be essential.
✔ Build Your Savings – Having at least three months of mortgage payments in reserves makes a big difference.
✔ Compare Rent vs. Mortgage – If your future mortgage payment is close to your current rent, it helps your case.
✔ Track Extra Income – If you have additional income that isn’t being counted, document it for future use.
✔ Check Your Residual Income – Ensure you have enough left over after paying your major expenses.
Even if your loan requires a manual underwrite, you can still qualify for a mortgage by showing financial strength through compensating factors.
📌 Need help preparing? We’re here to guide you every step of the way! Reach out for a free consultation, and let’s put together a plan to get you approved.
📩 Have questions? Drop a comment below or send us a message!
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