Monthly Debt Payment for Mortgage Purposes

[Anonymous]

My husband and I are planning on purchasing a home in the next 4 months. Luckily, we have no debt. However, I am self-employed and obtain professional liability insurance. Normally, I pay my inurance payments monthly over the year. I am at my annual renewal now and wondering if I should pay the entire premium at one time, so that I don't have that monthly payment. The only negative to this is that it reduces the amount of cash that I will have available in my account, and we live in coastal California where property is expensive and I'll want to have as much cash as is possible when we apply for the mortgage.

I understand that insurance isn't technically a debt like CC or car or student loan payments. Would a monthly insurance payment (that I am basically obligated to maintain) count as a monthly debt payment? Would an underwriter look at these monthly payments and calculate that into my DTI?

As a side note, the professional insurance is an expense under my business, and I understand that for my income purposes, my self-employment income AFTER deducting expenses is the amount that will be considered.

Thank you.

[Anonymous]

If this is a business expense, and is on your schedule C, it will already be factored in as a deduction to your gross income.  Your net income form your schedule C will be used,  so that would not be factored in to your DTI calculation.

[ShanetheMortgageMan]

Answer is since it's an expense on your tax returns, it's already being calculated into the debt ratios... so paying it on an annual, quarterly, monthly, etc. basis would not matter.  I would not sweat it.  Now if it was a recurring obligated business expense you just started incurring OR have incurred and have not expensed it, then most would argue you'd need to have it included in the debt ratio, and I would agree.  Other personal insurance, like car, health, and life, is never included in the debt ratio though.

If you are buying in the Cambria area I know of a great buyer's agent.

[Anonymous]

Thanks for the replies. That is a relief. I'll just pay this monthly. I have been paying this for years, and the only difference is that insurance premiums continue to rise year after year.

I am in San Diego.

[ShanetheMortgageMan]

Welcome.   For some reason I saw central California coast, not just California coast.