DTI Limits by Program
| Program | Front-End | Back-End | With AUS |
|---|---|---|---|
| Conventional | 28-36% | 45% | Up to 50% |
| FHA | 31% | 43% | Up to 57% |
| VA | N/A | 41% | Higher allowed |
| USDA | 29% | 41% | Up to 44% |
Credit Score Thresholds
| Program | Minimum | Preferred | Notes |
|---|---|---|---|
| Conventional | 620 | 700+ | Better rate + DTI at 700+ |
| FHA | 580 | 620+ | 500-579 = 10% down required |
| VA | None* | 680+ | *Lenders typically want 580+ |
| USDA | 640 | 680+ | Manual UW if below 640 |
Reserve Requirements
| Scenario | Minimum | Notes |
|---|---|---|
| Primary — Conventional | 2 months PITIA | More = compensating factor |
| Primary — FHA | 1 month PITIA | Manual UW may require more |
| Investment Property | 6 months PITIA | Per property owned |
| Jumbo Loans | 6-12 months | Lender-specific |
Banks vs Brokers — Know This
BANK
Direct lender. Funds own loans. Fewer programs. Can lower closing costs due to fewer parties in the transaction.
BROKER
Shops multiple lenders. More programs. Better for complex files. May carry slightly higher fees. Best when bank cannot accommodate the file.
W-2 Income Calculation
Salary Formulas
Monthly: amount × 1
Bi-weekly: amount × 26 ÷ 12
Semi-monthly: amount × 24 ÷ 12
Weekly: amount × 52 ÷ 12
Hourly: rate × hours × 52 ÷ 12
Bi-weekly: amount × 26 ÷ 12
Semi-monthly: amount × 24 ÷ 12
Weekly: amount × 52 ÷ 12
Hourly: rate × hours × 52 ÷ 12
Bonus / Overtime
Requires 2-year history on W-2s
Method: (Year 1 + Year 2) ÷ 24 months
If declining: use lower year only
No 2-year history: exclude entirely
Method: (Year 1 + Year 2) ÷ 24 months
If declining: use lower year only
No 2-year history: exclude entirely
⚠ If YTD is lower than prior year — confirm reason. Use lower of YTD and W-2 unless decline is explained and documented.
Self-Employed Income (Schedule C)
1
Net profit from Schedule C Line 31
+
Depreciation ADD-BACK — Line 13
+
Business use of home ADD-BACK — Line 30
+
Mileage/vehicle ADD-BACK — Line 9
+
Non-recurring loss ADD-BACK
−
Non-recurring income DEDUCT
÷
Divide by 24 for 2-year average monthly. If declining — use lower year ÷ 12.
⚠ Large write-offs reduce qualifying income. Tax optimization and mortgage optimization often conflict. Review with borrower before they file.
Rental Income (Schedule E)
1
Gross rents (Line 3)
−
Total expenses (Line 20)
+
Depreciation ADD-BACK · Insurance · Mortgage interest · Taxes · HOA
÷
Months used (typically 12)
−
Verified monthly mortgage payment
=
Net monthly rental income/loss
⚠ Net rental losses are included with liabilities in DTI. Do NOT use this method for primary residence rental income.
Fixed / Retirement Income
SS
Non-taxable Social Security can be grossed up 25% — count $1.25 per $1.00 receivedMust continue 3+ years
PEN
Pension — current award letter amountMust continue 3+ years
IRA
Distributions — must be established, 3-year continuance required
ALI
Alimony received — divorce decree + 3-year continuance
15 Most Common Denials + Fixes
1
DTI too high
→ Pay down revolving debt · increase income · remove co-borrower debt
Timeline: 30-90 days
2
Credit score below minimum
→ Pay utilization below 30% · dispute errors · no new inquiries
Timeline: 30-90 days
3
Late payment in last 12 months
→ Time — no new lates · manual UW after 12 clean months
Timeline: 12 months min
4
Missing income documentation
→ All pages all years all schedules — gather immediately
Timeline: Immediate
5
Self-employment declining income
→ Wait for 2 years of stable/increasing income
Timeline: 12-24 months
6
Unexplained large deposits
→ Paper trail for every deposit · 60-day seasoning
Timeline: 60 days
7
Insufficient reserves
→ Save more · use retirement assets at 60-70%
Timeline: 3-6 months
8
Appraisal below purchase price
→ Renegotiate · bring additional cash · or walk away
Timeline: Immediate
9
Condo project not approved
→ Find approved project · FHA spot approval · conventional
Timeline: Varies
10
Active bankruptcy — discharge date not met
→ FHA: 2yr · VA: 2yr · Conventional: 4-7yr
Timeline: Per program
11
CAIVRS hit — federal debt delinquency
→ Resolve federal obligation · get CAIVRS cleared
Timeline: Varies
12
No 2-year employment history
→ Document gap · show same field · time
Timeline: 12-24 months
13
Gift funds not documented
→ Signed gift letter immediately — no letter, no funds
Timeline: Immediate
14
Property condition failure (FHA/VA)
→ Seller repairs · conventional program · different property
Timeline: Varies
15
Too many recent inquiries
→ Wait 90 days · explain purpose of each
Timeline: 90 days
Compensating Factors
What saves a borderline file
Credit score 720+
Unlocks higher DTI in DU/LP
Reserves 12+ months
Strongest single compensating factor
Down payment 20%+
Eliminates PMI — significantly reduces risk
Minimal payment increase from current housing
New payment close to current rent
12 months on-time rental history
Especially powerful for FHA borderline files
Long-term employment 5+ years same employer
Stability signal — underwriters notice
Hard Stops — File Killers
DTI above max with no AUS approval
Active bankruptcy — discharge date not met
Unexplained large deposits — cannot verify source
CAIVRS hit — federal debt delinquency
Fraudulent documents — immediate termination
Property fails minimum property requirements
Income declining with no reasonable explanation
Difficult Conversation Scripts
How to deliver a denial
"I want to walk you through exactly what happened — and more importantly, exactly what it takes to change the outcome. The underwriter identified [specific reason]. That is fixable. Here is what I need you to do and here is the timeline to get you back in front of an underwriter with a clean answer."
Key: Specific reason. Specific fix. Specific timeline. Never vague.
Explaining DTI in plain language
"Think of it this way — every dollar you earn each month before taxes, the underwriter takes your total monthly debts and divides by that number. If your debts are 45% of your income you have 55 cents of every dollar left. Above 50% the lender gets concerned you're stretched too thin. The good news — we can work on reducing that ratio right now."
Plain language analogy. End with action.
Self-employed income is lower than expected
"The write-offs that saved you [amount] in taxes also reduced your qualifying income by that same amount. Going forward — two paths: loan programs that use bank statements instead of tax returns, or we look at the price range that works with the income on your returns."
Acknowledge the frustration. Explain the rule. Give two paths. Never dead-end.
10 Things New LOs Learn the Hard Way
From 12 years in the UW chair — Jennifer Heller
1
The pre-approval is not the approval.Set realistic expectations with every borrower. The UW makes the real call.
2
Self-employed income is what the tax return says.Not what the borrower says. Get the returns before shopping the price range.
3
DTI is gross income — not take-home.Always before taxes. Always before deductions.
4
Every page of every bank statement.If it says 1 of 6 — I need 6 pages. The missing page is always the one I need.
5
Large deposits without documentation stop a file cold.Coach borrowers before they apply — document every dollar of down payment.
6
Credit score matters less than credit history.I read the report — not just the score. Recent history carries far more weight.
7
Underwriters have discretion.I can approve outside the guidelines if the file is strong. I can also deny something that technically qualifies if the pattern concerns me.
8
Your processor is your most important relationship.A great processor closes deals a mediocre one loses.
9
No job changes between pre-approval and closing.Make the "do not change anything" speech standard at contract signing.
10
The borrower who prepares wins.Every single time. That's why The Everyday Underwriter MasterClass exists.
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This toolkit is for professional educational reference only. Does not replace Fannie Mae, Freddie Mac, FHA, VA, or USDA guidelines. Always verify against current agency guidelines and lender overlays.
Jennifer Heller | NMLS# 2375826 | The Everyday Underwriter, LLC | Equal Housing Lender
© 2026 The Everyday Underwriter MasterClass. All rights reserved.
Jennifer Heller | NMLS# 2375826 | The Everyday Underwriter, LLC | Equal Housing Lender
© 2026 The Everyday Underwriter MasterClass. All rights reserved.