Real Estate Conversations with Brenda

What Is Included In The Debt-To-Income Ratios?

I received this phone call from an out of state number the other day...It was this famous Active Rain Lender Guy named George Souto.  He called me because of this comment on one of his recently featured posts, (he writes some terrific stuff!).  


You see, I find Debt to Income Ratios confusing sometimes...well, I get it, but sometimes it's hard to explain it just right to my clients.  Now..ordinarily I send my clients to trusted San Antonio TX lenders when they want to buy a home here in San Antonio to get explanations on all things finance, but I like to be knowledgeable enough to at least begin the process with my San Antonio TX buyers.

So, when I made that comment asking George to explain Debt to Income Ratios in a way clients could understand it, he called me to ask me just what I wanted and boy did he deliver.  Thank you so much George for this easy to understand explanation of Debt to Income Ratios!!

I wrote a blog  "Not Everything In Debt-To-Income Ratios Are The Same In Loan Programs"  earlier this week pointing out that the Consumer Financial Protection Bureau (CFPB) QM Rule for a flat Total Debt-To-Income Ratio of 43% on all Loan Programs was not a wise or practical thing to do.  In the blog I gave examples of what makes up the Housing Ratio and Total-Debt-To-Income Ratios (DTI)) for each Loan Program, however, the way I presented it was a little difficult to follow.  So Brenda Mullen, in her comment on my blog, asked if I could write another blog just on What Is Included In The Debt-To-Income Ratios?

A Debt-To-Income Ratios is the Percentage of the Borrower(s) Monthly Debt versus the Monthly Borrower(s) income.  In other words the Borrower(s) Debt divided by Borrower(s) Income = Debt-To-Income Ratio (DTI). For example if the Borrower(s) have $2,000 in Monthly Debt, and $5,000 of Monthly Income:

$2,000/$5,000 = .40% DTI 

Every Borrower(s) has TWO Debt-To-Income Ratios: 

  • The first is the Housing Ratio, known as the "Front or Top Ratio"
  • The second is the Total Debt-To-Income Ratio, known as the "Back or Bottom Ratio". 

The following is what is included in each Ratio.  As I list each debt that is calculated into the Debt-To-Income Ratio's, I will indicate if the debt is just specific to a Loan Program.

Housing Ratio more commonly known as the "Front or Top Ratio" consists of:

  • The Loan Principle & Interest
  • Property Taxes
  • Homeowners Insurance (hazard insurance)
  • Homeowners or Condo Association Fees (HOA) Note: only if the property is located in a development that has a Homeowners Association.
  • Private Mortgage Insurance (PMI) - Only on Conventional, or USDA Rural Loans.  Note: There is no PMI on Conventional Loans if Borrower's Downpayment is 20% or more.
  • Monthly Insurance Premium (MIP) - Only on FHA Loans
  • Downpayment Assistance Loans
  • Second Mortgage, Line of Credit, if it is done at the same time as the First Mortgage. 

Total Debt-To-Income Ratio more commonly known as the "Back or Bottom Ratio" consists of all the debts that were included in the Housing Ratio plus:

  • All Monthly Revolving Debt such as:
    • Credit Cards
    • Loans such as:
      • Car Loans
      • Student Loans
      • Personal Loans
      • Second Mortgage, Home Equity, & Line of Credit if not done at the same time as the First Mortgage, or was done at the same time but is being subordinated on a new loan.
  • Child Day Care - Only on VA Loans.
  • Child Support Payments
  • Alimony Payments
  • Existing Mortgage Payments (second home, investment property, etc.)

There are exceptions for some of the above debts if they only have a certain amount of payments left, or if a loan is being deferred, which is common of student loans. But as a general rule, the above debts will be include in the Total-Debt-To Income Ratio.

I hope I have been able to provide the above information on What Is Included In The Debt-To-Income Ratios, in a basic easy to understand format, that is easy to explain, and proves useful to those reading it.

 

*******************************************************************************

 Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

Brenda Mullen – San Antonio Texas Real Estate Professional

Brenda Mullen Your San Antonio TX Real Estate Agent
 
Selling a San Antonio Texas area home involves many steps and having an experienced  San Antonio  Texas Real Estate Agent by your side will make the transaction run a lot smoother. I would love to be your San Antonio Texas Area Real Estate Professional! I assist both buyers and sellers in the San Antonio Texas area with either the purchase and or sale of residential real estate.
 
As an Accredited Buyer’s Agent, I have received special training to guide and educate you through the entire home buying process. From start to finish, I listen to your needs and desires in what you would like and take the information you give me to find you home.
 
As your San Antonio Texas listing agent I am well versed on the local San Antonio Texas area Real Estate Market. You can expect personalized service that includes a detailed consultation on how to best position your home to be competitive in today’s market with an in depth comparative market analysis, and advice on staging. I use the latest and most up-to-date marketing methods to get your home in front of as many buyers as possible. Being your San Antonio Texas area Realtor® not only involves just finding the home or selling the home, but being your guide, negotiator, advisor and advocate and making sure that your needs and goals are met. Being your San Antonio Texas area Realtor® is one of my truest passions, and “Helping You Find Home” is my number one priority.
 
 
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Brenda Mullen
Broker-Associate/Realtor®, ALHS®, MRP®, ABR®, ePro®

Team Leader The Mullen Group with RE/MAX Access - Helping You Find Home
19115 FM 2252 STE 15

 

Comment balloon 3 commentsBrenda Mullen • January 25 2013 08:59PM
What Is Included In The Debt-To-Income Ratios?
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