Debt Reduction vs DTI - 2020 Questions

[mrsgrits]

I hope all is well with everyone. Also, I hope my signature reads well. If not, ask any question.

So my individual DTI (23% or so) is higher than I would like, but I feel so saturated with my budget that everything would virtually be PIF at the same time (aside from SLs) versus tiered using debt snowball method or debt avalanche method or credit utilization method. Also, I am using a combo of some of Dave Ramsey - I don't agree with everything/YNAB/FICO Forum (derived minimum payment method) for the majority of budget ideas. Hits and misses and BAU in life. I can't tell what could be possibly PIF next, if anything.

Combined DTI is only 14% or so but nowhere near ready for mortgage apps. My biggest weakness is overthinking. Math is easy but logic has so many variables. I know I am missing something, somewhere.

So various questions arise, and TBH, this would only be first set/subset of questions. I have been an off/on member for years but have not read every post. Here goes:

1.) At least 3 lines of credit needed for any mortgage app (+2 years history). Is this per applicant or combined? If individual, then we would need one more (again, nowhere near ready).

2.) If FICO 10/10T is adopted relatively soon, should I still play guinea pig and do my last BT attempt in Jul 2020 (which was previously planned before the news)? I know I should not, but in not doing so, it really puts a dent in interest reduction to pay down principals.

3.) I also have a 401k loan 2017, which still coincides with budget saturation where PIF would again be around the same time as everything else. Also, I have an additional debt tied to back tax property 2016 that would have to be paid before I could move forward. So my last resort idea is to pay off current 401k loan to get yet another loan to pay this debt or use for down payment, but not both. Yet, this is next to last on the debt reduction list, where SLs are last. I could get an additional personal loan, which I know I should not considering any scenario. However, it could nip this in the bud and everything could finally be paid down, instead of interest accruing with no payment at all. Is this breaking the camel's back for a small spurt?

[mrsgrits]

Very sorry for double post. FICO increased member rank and I thought my edit to the previous post include breaks was discarded altogether.

[Revelate]

Your post and signature came through fine though most people do it in balance/CL order so it threw me for a second or two.

I'm just going to use napkin math at 10k debt and 20% APR: that's effectively 2K per year in interest.  That's just lost money... for me that is a mortgage payment and then some.  That doesn't even include the issue of the 401k loan math.

FICO 10T is a ways off, it'll be years before adoption so don't let it freeze you in place... honestly even after it becomes more relevant still shouldn't let that stop you from doing the financially smart thing.

Ultimately I am in favor of paying off one's debt if it's above a certain line: for me that line is somewhere around 4-5% generally depending how I am feeling about my financial life.  I would be ruthlessly refinancing your debt down via BT or other routes and I would suggest you should be too if trying to get out of debt.

The other thing though I will just ask: assuming your DTI is right, where is the money going?  Always have to be brutally honest with oneself regarding outflows, and is always worth taking a second look every so often.

[Anonymous]

Call me confused, but wouldn't 14% DTI be great for a Mortgage app?

That said, i don't know how you can have such low DTI when you have a rather high debt obligation. Or why you're choosing to have high UT acrosss all cards. With that low of DTI why not pay down big time on some of those high interest CC's? You're suffering from too many accounts with high balances ATM.  Either pay off the lowest balance with an APR, or the highest rate first. Then try to bring the others to 28% on each one.

[mrsgrits]

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@Revelate wrote:

Your post and signature came through fine though most people do it in balance/CL order so it threw me for a second or two.

I'm just going to use napkin math at 10k debt and 20% APR: that's effectively 2K per year in interest.  That's just lost money... for me that is a mortgage payment and then some.  That doesn't even include the issue of the 401k loan math.

FICO 10T is a ways off, it'll be years before adoption so don't let it freeze you in place... honestly even after it becomes more relevant still shouldn't let that stop you from doing the financially smart thing.

Ultimately I am in favor of paying off one's debt if it's above a certain line: for me that line is somewhere around 4-5% generally depending how I am feeling about my financial life.  I would be ruthlessly refinancing your debt down via BT or other routes and I would suggest you should be too if trying to get out of debt.

The other thing though I will just ask: assuming your DTI is right, where is the money going?  Always have to be brutally honest with oneself regarding outflows, and is always worth taking a second look every so often.

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I will work on the signature! I know it is simply a mess. LOL.

Napkin math is more like $5500 based on last year (combo of CCs, Car Loan, SLs, PL-DTI was even higher). Ugh, I know. Last year, SO lost his job mid-year July 2019, so it was a hit that took a few months to get back on track. BEF was depleted. He is now employed. My income had a small upward spike, as well. All cars were paid off and 1 CC, too. Highest Util peak was 81% (CLs $20,500) in September 2019 - Util was lower before the income stall. I am estimating that the end of February 2020, I will be back down to 68.9% threshold (CLs $21,500) - still waiting on 4 cards to report and 1 paycheck to "make it so #1".

Thankfully, napkin math will be way less this year. Unfortunately, 2 cards were at 0% and will now accrue interest this month/next month on the middle balances - but still won't reach last year's amounts.

So, going forward with BT in July 2020 $1455/$43.65, but I am not going with an additional PL. Doing minimum payment method (mpm) with remainder to highest APR. For example, if stmt min pmt is $145, then I add $10 (based on advice in FICO Forums), then divide by 2. The resulting $77.50 is rounded to next $0 or $5. Final result is $80 bi-weekly payment. I do it this way because I am more partial to an even amount or easier to remember amount. Each base paycheck is broken down to a portion to Rent, sinking funds, 1/2 PL, SLs (which I am only paying interest plus $35 - due to much lower APR), mpm to CCs, and again any remainder to CC with highest APR. So that leaves IRS pmt, car ins, FICO, food, toiletries, and gas, literally. 401k loan is not that big of a deal except for ability to reuse, which is less than $49 per check. I estimate a $10k reduction for this year, but may relook to apply this to lower balances and instead of combating highest interest first.

[mrsgrits]

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@Anonymous wrote:

Call me confused, but wouldn't 14% DTI be great for a Mortgage app?

That said, i don't know how you can have such low DTI when you have a rather high debt obligation. Or why you're choosing to have high UT acrosss all cards. With that low of DTI why not pay down big time on some of those high interest CC's? You're suffering from too many accounts with high balances ATM.  Either pay off the lowest balance with an APR, or the highest rate first. Then try to bring the others to 28% on each one.

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To clarify, if I apply by myself, my DTI is 23%. If SO and I apply together, then DTI is 14%. If he needs 3 lines of credit to apply, then he would have to get another CC. I shouldn't apply either due to my Util is over 30%. I have a BEF started again but would need to payoff 401k loan for any decent amount for down payment. I spoke of my budget in previous post. However, SO has variable income. He pays the greater portion of Rent, power, cell, renters ins, car maintenance, gas, 2 CCs that don't have any balances for real - lucky dog, and any misc that may arise. He gets the less than 30%, but has yet to master AZEO.

Aside from the income stall, I was hoping to be down to 40% Util by now, based on all of life's turns, but we never know. I am still moving forward, I just am not fond of the budget saturation with any pay down method. You bring the umbrella, in case it rains, but you still carry it around, whether it rains or not.

[Revelate]

Any lender with a 3 tradeline requirement on a mortgage app is using an overlay, and honestly doesn't understand what business they're in anymore.

The vast majority of lenders these days are if you can generate a FICO score, you're good.

[mrsgrits]

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@Revelate wrote:

Any lender with a 3 tradeline requirement on a mortgage app is using an overlay, and honestly doesn't understand what business they're in anymore.

The vast majority of lenders these days are if you can generate a FICO score, you're good.

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You make a great point and simply put. I initially heard this from NACA 2 years ago and I didn't agree with any of their requirements for membership purposes. For basic mortgage counseling, they give decent advice. DTI is based on net income versus gross, so provides ideas for a more realistic budget. For membership portion, there are 10 steps, where step 10 is to apply for housing payment assistance with them. It seemed like a set up for failure to keep you in their system. It was more like a database compilation instead of increasing homeownership, as they project. You still need money down regardless. So you could really do it all on your own, anyway. You can keep your free time, too. I am not knocking anyone who goes through the program. I just didn't like my experience with only the initial workshop and first counseling session. The counselor was the same for both and was not professional, at all. I can waste my own time.

Also, I think they used BOA and maybe WF for lending or maybe Citi, so it was a no go to continue, even outside of professionalism. I prefer not to work with either company, anymore. They have lost my business, among many others. I could go on all day about WF, but that would be for another day. My sig will be reduced too. I mean immediately after closing. I only have to write in the date on the letters. I plan on combining CO again, and shoot for PC, but they can easily get dumped, as well.

I will stick with my hurdled plan and make tweaks, as needed. I thank you very much for your replies/perspective.