Sep 1, 2022 2022-17
Housing NM Debt to Income (DTI) Overlay Clarification and Revision
Housing NM recently reassessed its DTI overlay to determine if it has helped achieve the desired effect of reducing delinquencies, and to consider whether it could potentially be eliminated.
Although the DTI overlay has reduced delinquency rates to some extent, it is evident that it must continue to remain in effect and not be eliminated at this time. Keeping delinquencies to a minimum ensures the quality and health of Housing NM’s loan portfolio and will allow us to expand our down payment assistance programs going forward.
We would like to take this opportunity to revise and clarify Housing NM’s DTI requirement based on our partner requests for clarity and simplicity regarding scenarios where there is a non-occupying co-signer. The new DTI requirements apply to Uniform Residential Loan Applications (URLA) dated on and after September 15, 2022.
Housing NM’s DTI overlay applies to all of Housing NM’s single-family programs including FirstHome and NextHome. This memorandum supersedes any prior memos regarding DTI, including Housing NM Lender Memos 2021-01 and 2022-04. Loans must still meet current Ginnie Mae, USDA, VA, HUD Section 184, and Fannie Mae guidelines. We understand that this guidance cannot address every potential loan scenario and therefore will continue to provide broad guidance.
Below are two common scenarios explained:
A. For all occupying borrowers DTI is limited to 50.00%, as has been our requirement. Housing NM’s DTI calculation is based on all the income used by the lender to qualify along with all related debts as reflected on the Automated Underwriting System (AUS) and Loan Transmittal.
| Scenario (1. A) | Total Income (lender) | Total Debts (lender) |
| Borrower | $ 3,000.00 | $ 1,500.00 |
| Co-borrower | $ 2,000.00 | $ 500.00 |
| Total | $ 5,000.00 | $ 1,500.00 |
| Housing NM DTI CALC | = $1,500.00/5,000.00 | 30.00% | Eligible |
| Scenario (2. A) | Total Income (lender) | Total Debts (lender) |
| Borrower | $ 3,000.00 | $ 1,500.00 |
| Co-borrower | $ 2,000.00 | $ 1,025.00 |
| Total | $ 5,000.00 | $ 2,525.00 |
| Housing NM DTI CALC | = $2,525.00/5,000.00 | 50.50% | Ineligible >50.00% |
B. Alternatively, if a non-occupying co-signer [1] is added to the loan, the DTI for all occupying borrowers is now limited to 55.00%. The non-occupying co-signer's income and debt is not considered in Housing NM’s DTI calculation. Only the occupying borrower’s income and debt will be factored into Housing NM’s DTI calculation.
| Scenario (1. B) | Total Income (lender) | Total Debts (lender) |
| Borrower | $ 3,105.00 | $ 1,295.00 |
| Co-borrower | $ 3,250.00 | $ 2,200.00 |
| Non-Occupying Co-Signer | Not included in Housing NM calculation |
Not included in Housing NM calculation |
| Total | $ 6,355.00 | $ 3,495.00 |
| Housing NM DTI CALC | = $3,495.00/6,355.00 | 54.99% | Eligible |
| Scenario (2. B) | Total Income (lender) | Total Debts (lender) |
| Borrower | $ 3,000.00 | $ 1,295.00 |
| Co-Borrower | $ 3,250.00 | $ 2,200.00 |
| Non-Occupying Co-Signer | Not included in Housing NM calculation |
Not included in Housing NM calculation |
| Total | $ 6,250.00 | $ 3,495.00 |
| Housing NM DTI CALC | = $3,495.00/$6,250.00 | 55.92% | Ineligible >55.00% |
If you encounter a scenario that falls outside the parameters outlined above, please reach out to our team. Please note that such a request may take one business day to review and render a decision.
Increasing the DTI limit in cases involving non-occupying co-signers, creates opportunities for some borrowers that would have otherwise been ineligible to participate in Housing NM's Single-family programs. Housing NM’s focus remains on the borrower’s ability to repay and the likelihood of their long-term success.
There are no exceptions to the DTI requirement.
Should you have questions please contact a member of the homeownership department at 505.843.6880.
Thank you for participating in Housing NM programs.
[1] Housing NM defines a non-occupying co-signer as an individual who does not have ownership interest in the property and does not occupy the residence. They serve as a guarantor solely for the debt obligation. Co-signers sign the notes for the first and second lien positions. Non-occupying co-signers are not reflected on title or on the purchase agreement.
