Marty Searing
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DTI Ratio
DTI Ratio - DTI, also known as debt to income ratio, is a major factor when becoming qualifed for a mortgage.

50% DTI is usually the most that lenders will lend upon. Exceptions do abound.

Your DTI, or debt to income ratio is the general basis for calculating how much of a home or home loan a consumer can afford. Debt to income ratio is figured by dividing monthly income and monthly bills by each other. The percentage calculated will equal your debt to income ratio.

DTI does not take into account bills like telephone, grocery and other daily living exspense. Keep this in mind when figuring your mortgage payment and how it will affect your finances.

If you think your DTI is too high for most lenders you should consider a "No Ratio" loan. These mortgages require high credit scores and good employment history. Be sure to ask your preferred mortgage professional if a No Rato loan is right for you.

Different loan programs have different debt-to-income guidelines. Government and conventional mortgages have lower DTI requirements than some Alt-A and subprime loans.

Installment debts (like car loans for example) with less than ten payments remaining generally are not included in the DTI calculation.

There are two Debt-To-Income Ratios (DTI) lender banks look at. The "Front DTI" is derived from dividing the housing expenses by gross income. The "Back DTI" is the sum of housing expenses and all installment debt obligations, such as vehicle finance and credit card debt payments, divided by gross income. Lenders are more concerned about the Back DTI than the Front DTI.

A loan program where you are stating your income rather than providing full proof of it will usually have a lower DTI requirement. Again, as has been mentioned before, stated income is designed for those who cannot prove their income and should not be taken as an opportunity to artificially inflate actual levels of income.

Debt to Income Ratios - A Debt to Income Ratio is the percentage of monthly income compared to monthly debt. To figure out ones debt to income ratio you will take a 12 month total of income (a W2 from work is perfect for this) and divide the total by 12 months and this will give you your average monthly income. Next you will add up all of your current monthly expense payments (such as cars, credit cards, house payments {including property taxes, homeowners insurance, homeowners association fees if applicable}, alimony or child support you are required to pay, personal loans, etc...) and then divide the monthly income by the total monthly expenses. This is a simplistic approach to calculate your approximate debt ratio.
Example: $36,000 yearly income / 12 months = $3,000 monthly income
Total monthly bills = $1300 per month / $3,000 monthly income = $43.33% debt to income ratio

Your debt to income ratio is the main factor that a lender uses to determine how much of a home loan mortgage payment and home that you qualify for. By calculating your debt ratio before your mortgage payment you can figure out how much money your monthly mortgage payment can be based on the lenders debt to income ratio guidelines and you income. Consult your WI mortgage consultant to find out exactly how much of a home you will qualify for based on your debt to income ratio, also known as DTI.

If you do not qualify for a loan because your DTI is too high there are a couple options you have available. You can either try to increase your monthly income, or decrease your expenses. If you have some additional income that is hard to document, such as a part time cash job, or rental income, etc. that you did not include talk to your mortgage professional they may be able to use that income to help qualify you. You may also be able to decrease your expenses by paying off the remainder of a car loan, personal loan, or credit card that has a high payment. Another alternative is to consider some alternative types of mortgages that have lower payments such as Interest Only, ARMs, 40 year terms, or a Pay Option ARM

You can reduce your debt to income by paying off your credit cards at closing. The lender will not include these debts in your dti if they are going to be paid at closing.

Bills such as groceries, cell phone and everyday living expenses are not figured into DTI. Keep this in mind when deciding on a comfortable house payment for your budget.

Your debt to income ratio (DTI) is a key indicator of your true financial picture. It is definitely the lending industry's measure of fiscal health. Your debt to income ratio is calculated by dividing monthly minimum debt payments (excluding mortgage or rent, utilities, food, entertainment) by monthly gross income.

Your debt-to-income ratio, also referred to as a "back end" ratio, is a major factor considered for mortgages, auto loans, and other large purchases. If your ratio is too high, you won't qualify for even high interest loans.

Getting out of debt and staying out of debt is simple. All it takes is spending less than you earn, but although the solution is simple, putting it into practice is hard for many people.

In mortgage related documents, Debt-to-Income Ratios are often expressed as two sets of two digit numbers separated by a slash. For instance, 28/36, where 28 is percentage of the "front DTI", or proposed housing expenses in relation to the applicant's income, and 36 is the percentage of the "back DTI", or total debt divided by income.

If you have a particular liability like a car loan or a student loan with 10 or less remaining payments then lenders will generally allow you to exclude that payment from your debt to income ratio.

Lenders look at both your front end ratio and your back end ratio. The front end ratio is calculated by taking the sum of your mortgage payment, property taxes, and homeowners insurance, and dividing that total by your gross monthly income. The back end ratio includes all of your other monthly obligations such as credit cards, car payments, personal loans, etc.

It is important to remember, when figuring your Debt to Income(DTI) while considering a debt consolidation/refinance, to remove any credit card payments from the equation, if they are to be paid off through the new loan.

High debt to income ratio mortgage loans - Many people have high debt to income ratios and can still qualify for a mortgage loan. There are many options available out there for people who have a high debt to income ratio, also referred to as DTI. One solution to a high debt to income ratio is to work with a lender that allows for a high debt to income ratio. Typical good credit lenders allow for debt ratios around 40%, although many times an automated underwriting system may qualify borrowers with a much higher DTI too. Typical below average credit score lenders will allow a maximum debt to income ratio of 50%. Then there are even a few other lenders who will allow debt to income ratios up to 55%, and sometimes even 60% on rare occasions. Consult a mortgage broker today to find the right lender for your individual situation.

Paying off high payment credit card and car loan accounts as part of a debt consolidation or cash out refinance is a great way to qualify for a lower rate mortgage.

There are also no ratio loans that some lenders can provide.

There are also programs available for high credit score borrowers called No Doc loans. This is when a lender does not require income information from the borrower and will base the loan on the creditworthiness of the borrower.

If you are doing a mortgage refinance it may be possible to consolidate some of your other debts, such as credit cards, car loans, etc. into your new mortgage. By eliminating your other monthly debt payments, leaving you with just your new mortgage payment, you might find that this significantly lowers your debt to income ratio.

Even if you make more than enough money to comfortably pay for the mortgage you may find that you have to look at some of these other types of loans because the lender will not accept all of your income. Some examples would be a 2nd job, commission income, or bonuses that you have been receiving less than 2 years. Lenders may also not include rental income you receive if you rent out rooms in your home and do not have a signed lease, or proof of 12 months payments received.

If you fall into one of these categories you may need to look at a loan that allows a high debt to income ratio, even though your actual income may be more than sufficient to qualify.

Having a high debt to income ratio no longer means you are forced to accept the high rates and unfavorable terms of many subprime loans. If you have sufficient compensating factors, such as a perfect mortgage payment history and high credit scores, you may be able to qualify for a loan only slightly more expensive than someone with a low debt to income ratio. Be sure to ask your loan officer to submit your loan to various Automatic Underwriting programs prior to accepting a high rate subprime loan.

On higher debt-to-income ratio borrowers, a lender will sometimes require a certain amount of disposable income before approving this high debt ratio loan. Disposable income is calculated by taking the gross monthly income minus the monthly liabilities. If the borrower has a large amount of disposable income, say $3000 a month, then the lender is more likely to approve the loan.

  

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Loan Officer | Difference Between High Risk Loans and Prime Loans | Where should I go to obtain a mortgage | Bad Credit Home Loan | Tips for keeping your heating bill down | Frequently Asked Questions - Credit | Home Equity Loan for Condominiums | Consolidating Debt - Refinance or 2nd Mortgage | Cash Out Refinance | Option ARM Mortgage | Subprime lending | Employment History | Avoiding Foreclosure | For Sale By Owner Tips
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