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DTI


Lclutse
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How do you accurately calculate DTI? I used online calculators yet the mortgage broke and I had two vastly different percentages… he included my credit score somehow…

I have three small collections technically none because they are paid but still showing and a student loan for 35k 

I owe hardly nothing yet my DTI is high at 57% why?

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5 hours ago, hegemony said:

can you clarify? what debts are they including? do the "paid" charge offs still show a balance on your four consumer credit reports?

 

what about the denominator?

Currently I have a “open” chapter 13 bk which is

in the process of being closed (she said it should be done by the end of the month)

On myFICO it shows:

5 open accounts 

Prestige financial current status

3 department of Ed good standing

1 flexible finance in bad standing BUT will be paid off upon bk closing

I have 12 negative accounts(this includes flexible finance) but they were included in the bankruptcy…

 

2 Collections

progressive $494

Med recovery $1000

all to be paid when the bk closes

 

My utilization is showing: 

Zero on Equifax

54% on Transunion

129% on Experian

 

as for

the denominator he said 41

the property I want is 325k

i just don’t get how he’s getting the numbers 

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I'll be happy to try and wing this (although I don't have a particular finesse for this beyond corp finance experience) ...

 

Collections and charge offs are traditionally ignored by lenders.  They're typically going to require you to pay these in full at or before close, so they don't represent an on-going monthly obligation.

 

We're looking to calculate DTI = mo pmts / mo income

 

Total of your payments should be straightforward, unless there's something lurking below the surface you haven't delved into here.

Mo income is based on your gross income, so in many cases it's just annual salary/income divided by 12.

 

The industry looks at a "front end" ratio, which is your DTI, excluding your housing cost.  As you would expect, a "back end" ratio adds in your monthly mortgage payment, real estate taxes and property insurance.

 

If I understand correctly, your mortgage broker is saying that your back end ratio for the proposed mortgage loan is "41"  To try to arrive at that figure, it would be necessary to start with your mortgage payment (excl escrow), plus 1/12 of expected property taxes and insurance.

 

We can try to work this up together.  I don't think you want to do it openly on the forum (although it might be instructive for some).  You're welcome to private message me (just click on my post icon and click "Message") with the details.

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On 5/12/2023 at 9:45 PM, Lclutse said:

How do you accurately calculate DTI? I used online calculators yet the mortgage broke and I had two vastly different percentages… he included my credit score somehow…

I have three small collections technically none because they are paid but still showing and a student loan for 35k 

I owe hardly nothing yet my DTI is high at 57% why?

There's a lot here to cover. There are 2 ratios, your front end and your back end. The front end ratio is the percentage of your gross monthly income going towards the proposed monthly mortgage payment. The back end DTI is your total monthly debt payments plus the proposed mortgage payment divided by your gross monthly income. For example: Total monthly payment of $2,460 / Gross monthly income of $6,000 = .41 or 41%. 

 

Here's where things get tricky. Because your BK has not been discharged for 2 years, FHA requires your loan to be down graded to a manual underwrite. That means you'll be limited to lower maximum ratios based on whether or not you meet the compensating factors. See the guidelines below.

*HUD Guideline

           

31/43 No compensating factors required.  1 month PITI required.

     

37/47 One compensating factor required: Verified and documented 3 mos PITI reserves, Lesser of $100 or 5% housing payment increase, or residual income.

40/50 Two compensating factor required: Verified and documented 3 mos PITI reserves, Lesser of $100 or 5% housing payment increase, or residual income.

 

If your student loans are not reporting a monthly payment, FHA requires lenders to use .5% of the balance as a monthly payment. This may be part of the reason you're coming up with a different number.

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Lenders use the debt-to-income (DTI) ratio, which measures what proportion of your total monthly earnings is utilized to pay your debts each month, to assess your risk of borrowing.

  • The debt-to-income (DTI) ratio calculates how much money a person or business needs to make in order to pay off their debts.
  • The maximum DTI that a borrower can have and still get approved for a mortgage is typically 43%, however lenders prefer ratios of no more than 36%.
  • A borrower is more desirable if they have a low DTI ratio, which suggests that their income is sufficient to cover their debt obligations.
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On 5/18/2023 at 2:42 PM, VAloanMaster said:

There's a lot here to cover. There are 2 ratios, your front end and your back end. The front end ratio is the percentage of your gross monthly income going towards the proposed monthly mortgage payment. The back end DTI is your total monthly debt payments plus the proposed mortgage payment divided by your gross monthly income. For example: Total monthly payment of $2,460 / Gross monthly income of $6,000 = .41 or 41%. 

 

Here's where things get tricky. Because your BK has not been discharged for 2 years, FHA requires your loan to be down graded to a manual underwrite. That means you'll be limited to lower maximum ratios based on whether or not you meet the compensating factors. See the guidelines below.

*HUD Guideline

           

31/43 No compensating factors required.  1 month PITI required.

     

37/47 One compensating factor required: Verified and documented 3 mos PITI reserves, Lesser of $100 or 5% housing payment increase, or residual income.

40/50 Two compensating factor required: Verified and documented 3 mos PITI reserves, Lesser of $100 or 5% housing payment increase, or residual income.

 

If your student loans are not reporting a monthly payment, FHA requires lenders to use .5% of the balance as a monthly payment. This may be part of the reason you're coming up with a different number.

Ohhhhhhh I get it now! Thank you

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5 hours ago, MattHead said:

Lenders use the debt-to-income (DTI) ratio, which measures what proportion of your total monthly earnings is utilized to pay your debts each month, to assess your risk of borrowing.

  • The debt-to-income (DTI) ratio calculates how much money a person or business needs to make in order to pay off their debts.
  • The maximum DTI that a borrower can have and still get approved for a mortgage is typically 43%, however lenders prefer ratios of no more than 36%.
  • A borrower is more desirable if they have a low DTI ratio, which suggests that their income is sufficient to cover their debt obligations.

So how can I bring it down if I have no debt? Actually, I’m liquid now…

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4 hours ago, Lclutse said:

So how can I bring it down if I have no debt? Actually, I’m liquid now…

 

In short, DTI is calculated as if you take on the mortgage for which an application is pending or has been submitted. 

 

Even if you will have no other debts, a prospective lender wants comfort that the anticipated mortgage payment falls within bounds of what most people successfully manage to fund over the long term (total debt payments preferably limited to no more than 35%-40% of your gross income; some lenders will go beyond that with strong credit scores, long positive history, favorable work history, and solid documentation of income sources).

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12 minutes ago, hdporter said:

 

In short, DTI is calculated as if you take on the mortgage for which an application is pending or has been submitted. 

 

Even if you will have no other debts, a prospective lender wants comfort that the anticipated mortgage payment falls within bounds of what most people successfully manage to fund over the long term (total debt payments preferably limited to no more than 35%-40% of your gross income; some lenders will go beyond that with strong credit scores, long positive history, favorable work history, and solid documentation of income sources).

Ok

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  • 1 month later...

When we applied for a mortgage for the MA home we were buying in 2019, while continuing with our GA mortgage and HELOC, with 750 mortgage FICO's, we were approved with a leeway of up to 50% DTI.  (A factor in this was that my wife was in a new job and her bonus income, anticipated to be an added 30%, couldn't be included.)

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