Debt-To-Income Ratio? What counts?

[Anonymous]

As far as getting approved for a home loan goes, what counts in Debt-To-Income Ratios? Is it just bills you HAVE to pay every month such as car insurance, car bills, student loans, etc? How can I accurately determine mine?

[Anonymous]

Minimum payment on cc even if it has a zero balance. Plenty of online calculators to plug in your expenses against your gross monthly income

[Threeof5]

I can't speak for other lenders' programs but I count student loans, even in deferment, as an obligation for debt-to-income, as it does become an obligation eventually. Items such as auto insurance, cable bills, internet, etc. are not counted, but should be considered as part of your personal budget. Auto loans, credit cards, personal loans, all are calculated into DTI.

[CrankyDave]

It's just revolving and installment credit lines. So minimum credit card payments and car or student loan payments. Not sure about stuff like alimony or tax payment plans. I was confused by this, too.

[Threeof5]

Paying out child support, whether by garnishment or by monthly payment, does count as an obligation. Depending on the circumstances, tax liens can count if a payment plan has been established and reporting as such. Tax liens and past due child support can be listed as a delinquency too. Receiving alimony or child support can be counted as income if you choose and if you have supporting documentation (usually court documents). Different lenders may have different guidelines about how long you have been receiving it to count as income.

[Anonymous]

I believe with the new credit card rule credit cards with a 0 balance do not count against your DTI....just google it..that is how I found out.

[kberly69]

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@Anonymous wrote:

I believe with the new credit card rule credit cards with a 0 balance do not count against your DTI....just google it..that is how I found out.

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I know this thread is a couple months old but it seemed silly to start a new one. I found the same thing. Is this accurate? Looks like it was something that changed in 2016.

[Anonymous]

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@kberly69 wrote:

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@Anonymous wrote:

I believe with the new credit card rule credit cards with a 0 balance do not count against your DTI....just google it..that is how I found out.

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I know this thread is a couple months old but it seemed silly to start a new one. I found the same thing. Is this accurate? Looks like it was something that changed in 2016.

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As far as I can tell, credit cards that regularly reported $0 never counted towards a person's DTI.  What changed in 2016 was to relax the DTI even further.  This was to say that if you regularly paid a card in full (after the statement printed, with a positive balance being reported to the bureaus) then such a card would not count towards DTI either.

I base this on an article which I link to below.  The author writes:

Previously, lenders used whatever mid-statement balance a credit card reported to the credit bureaus -- TransUnion, Equifax, and Experian -- then multiplied that figure by 0.05 to determine the card's "monthly obligation".

A $10,000 American Express balance would add $500 to a consumer's obligations, for example.

Now, under the new rules, that American Express card's monthly debt is $0, which lowers the applicant's debt-to-income and makes it easier to get mortgage-qualified.

https://themortgagereports.com/17820/new-credit-card-rule-makes-mortgage-qualification-easier

I will buy a house this winter I think (or late fall) and my plan regardless is to have almost all my cards reporting $0.  That's because the FICO mortgage models really like it when they see most of your open accounts showing a $0 balance.  (FICO 8 and 9 likes it too, but not as much.)  Thus in practice, for the folks here on this forum, the new 2016 rules shouldn't make that much of a difference, because the smart decision is to pay most of your cards to $0 anyway.

[me12345]

The article that is referenced above is only talking about AmEx charge cards that show a balance but no payment amount listed on the credit report.... 

Any account with a Zero balance will not factored into the DTI ratio. 

The previous posts  regarding what consumer debt counts towards the DTI are correct.

Thanks, 

[StartingOver10]

^^^Exactly.

The front end ratio is calculated using your new housing payment: principal, interest, property taxes, homeowners insurance, flood insurance (if applicable) and MI if applicable and HOA/COA if applicable.

The total debt (back end) ratio is the above housing payment + the minimum payments on your credit card payments and installment loans.  Student loans are included in your total debt ratio too. Look at how the student loan debt calcuations are handled in the stickies. 

Don't make this more complex than it is...some lenders can and do have lower max ratios than what Fannie or Freddie or government loans allow (overlays). Some lenders have no overlays for debt ratios. Each individual lender sets their max ratios allowed, as long as it is equal to or less than what is permited by Fannie or Freddie or FHA/VA/USDA. Ask your lender what ratios they use so you know before you apply.