topic Re: Debt-To-Income Ratio? What counts? in Mortgage Loans

Debt-To-Income Ratio? What counts?

Anonymous — Tue, 14 Mar 2017 23:54:27 GMT

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?

Re: Debt-To-Income Ratio? What counts?

Anonymous — Wed, 15 Mar 2017 00:59:29 GMT

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

Re: Debt-To-Income Ratio? What counts?

Threeof5 — Wed, 15 Mar 2017 02:31:36 GMT

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.

Re: Debt-To-Income Ratio? What counts?

CrankyDave — Wed, 15 Mar 2017 02:58:47 GMT

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.

Re: Debt-To-Income Ratio? What counts?

Threeof5 — Wed, 15 Mar 2017 03:17:00 GMT

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.

Re: Debt-To-Income Ratio? What counts?

Anonymous — Wed, 15 Mar 2017 03:30:23 GMT

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.

Re: Debt-To-Income Ratio? What counts?

kberly69 — Wed, 02 Aug 2017 22:18:16 GMT

@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.

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.

Re: Debt-To-Income Ratio? What counts?

Anonymous — Wed, 02 Aug 2017 22:55:25 GMT

@kberly69 wrote:
@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.
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.

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.

Re: Debt-To-Income Ratio? What counts?

me12345 — Thu, 03 Aug 2017 03:38:42 GMT

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,

Re: Debt-To-Income Ratio? What counts?

StartingOver10 — Thu, 03 Aug 2017 12:56:26 GMT

^^^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.

Re: Debt-To-Income Ratio? What counts?

StartingOver10 — Thu, 03 Aug 2017 13:02:22 GMT

One more tip: you do not have to have all of your credit cards at zero. It's a nice concept to optimize your credit score before applying - but it isn't necessary to have all of your debt paid off. Remember, mortgage lenders are in the business of lending money for mortgages and if they are going to require all other debt to be paid off before making an application to get a mortgage, the demand for mortgages would drop like a rock. Buy what you can afford and with a payment that you can comfortably make, which is frequently less than what you qualify for when you begin to shop for mortgages.

I don't forsee lenders changing their requirements substantially over the next decade - including moving toward a Vantage score. JMO.

Re: Debt-To-Income Ratio? What counts?

Anonymous — Thu, 03 Aug 2017 15:37:18 GMT

@StartingOver10 wrote:
One more tip: you do not have to have all of your credit cards at zero. It's a nice concept to optimize your credit score before applying - but it isn't necessary to have all of your debt paid off. Remember, mortgage lenders are in the business of lending money for mortgages and if they are going to require all other debt to be paid off before making an application to get a mortgage, the demand for mortgages would drop like a rock. Buy what you can afford and with a payment that you can comfortably make, which is frequently less than what you qualify for when you begin to shop for mortgages.

I don't forsee lenders changing their requirements substantially over the next decade - including moving toward a Vantage score. JMO.

Yup! Not only that, but you shouldn't have all your credit cards at zero. There is a substantial scoring penalty for having all cards reporting zero.

There is, however, a scoring bonus for having most of your credit cards reporting at zero. People who may be borderline at getting the score they need for best rates on the mortgage (or on PMI) should consider this is one of the strategies in their back pocket.

Re: Debt-To-Income Ratio? What counts?

StartingOver10 — Thu, 03 Aug 2017 16:26:24 GMT

@Anonymous wrote:
@StartingOver10 wrote:
One more tip: you do not have to have all of your credit cards at zero. It's a nice concept to optimize your credit score before applying - but it isn't necessary to have all of your debt paid off. Remember, mortgage lenders are in the business of lending money for mortgages and if they are going to require all other debt to be paid off before making an application to get a mortgage, the demand for mortgages would drop like a rock. Buy what you can afford and with a payment that you can comfortably make, which is frequently less than what you qualify for when you begin to shop for mortgages.

I don't forsee lenders changing their requirements substantially over the next decade - including moving toward a Vantage score. JMO.
Yup! Not only that, but you shouldn't have all your credit cards at zero. There is a substantial scoring penalty for having all cards reporting zero.

There is, however, a scoring bonus for having most of your credit cards reporting at zero. People who may be borderline at getting the score they need for best rates on the mortgage (or on PMI) should consider this is one of the strategies in their back pocket.

^^^I agree that it is a great goal for the borrower/buyer to have all the cc's at zero except one and to have the one that reports with a small balance. But I don't want buyers and borrowers to get into preparation paralysis. For example, I see people post on here that they have a score of X (lets use 750) and that they could get a better rate with a better score. The reality is that they may do better with the same score and a different lender. It will make a difference on PMI rates which the buyer/borrower can check the PMI matrix to see where the breakpoints are ....

For a boarderline consumer with a 615 score where they need those extra 5 points or so to get to a better program, then yes, pull out all the stops.

Re: Debt-To-Income Ratio? What counts?

kberly69 — Thu, 03 Aug 2017 17:35:51 GMT

This is great stuff- thank you all!

Re: Debt-To-Income Ratio? What counts?

Anonymous — Thu, 03 Aug 2017 18:33:23 GMT

@StartingOver10 wrote:
But I don't want buyers and borrowers to get into preparation paralysis.

Great post. I really liked the phrase "preparation paralysis"!