Mortgage Refinance Tips Debt To Income Ratios

Mortgage & Refinance Tips Debt to​ Income Ratios
Debt to​ Income Ratios,​ often referred to​ as​ DTI’s,​ are a​ key calculation used in​ the​ refinance,​ debt consolidation,​ and purchase mortgage application process. a​ debt to​ income ratio is​ arrived at​ by dividing your monthly debt payments by your pretax income. Debt to​ income ratios are finally used to​ determine how much money you​ can borrow,​ and a​ thorough knowledge of​ DTIs can help you​ get the​ most value from your refinance,​ debt consolidation or​ purchase mortgage transaction.
There are two different types of​ debt to​ income ratios which are used in​ refinance,​ debt consolidation or​ purchase mortgage underwriting,​ a​ Front End Ratio or​ Front Ratio and a​ Back End Ratio or​ Back Ratio.
The Front Ratio is​ calculated by dividing the​ sum of​ your total monthly housing expenses,​ consisting of​ your mortgage payment including principal interest taxes and insurance as​ well as​ homeowner’s association fees,​ mandatory maintenance fees,​ common charges in​ a​ development and mortgage insurance if​ applicable.
The Back Ratio is​ similar to​ the​ front ratio,​ but on​ top of​ basic housing expenses the​ back end ratio also includes your other monthly debt payments,​ particularly consumer debt payments,​ into the​ calculation. Examples of​ monthly consumer debts are your credit card bills,​ automobile payments,​ personal or​ student loans,​ etc. Examples of​ items not typically included in​ a​ back end ratio would be life,​ health & car insurance premiums.
When your lender is​ evaluating your application,​ they are in​ fact trying to​ match your application with the​ lending criteria for the​ program which you​ want to​ see if​ you​ qualify for the​ loan. While there are many factors in​ determining how much money you​ can borrow and at​ what rate,​ debt to​ income ratio is​ amongst the​ most important. a​ good credit,​ conventional mortgage program will very often have a​ debt to​ income ratio requirement of​ 33/38 front/back,​ meaning that your monthly housing costs should be less than one third of​ your gross income per month.
If you​ make $3,​000. 00 per month,​ that means the​ maximum mortgage payment you​ could qualify for under a​ 33/38 program would be $1,​000. 00 per month inclusive of​ principal interest taxes and insurance as​ well as​ other housing costs,​ and your will only be allowed a​ total monthly expenditure including mortgage,​ credit cards and other consumer debts totaling $1,​140. 00. That may seem very conservative,​ and it​ is. if​ you’ve ever been turned down by a​ brick and mortar bank for a​ mortgage refinance,​ debt consolidation loan or​ for financing a​ new home purchase,​ chances are it​ had something to​ do with your program’s low debt to​ income ratio.
Many modern lenders are not as​ concerned about the​ back end ratio at​ all and decide solely on​ the​ basis of​ the​ front ratio,​ and in​ the​ case of​ a​ veteran’s VA loan,​ their guidelines only concern the​ back ratio and ignore the​ front. FHA loans allow you​ to​ carry more consumer debt but with a​ higher income requirement,​ with a​ standard debt to​ income ratio guidance of​ 29/41 front/back.
Progressive lenders now have programs with excellent rates which allow individuals to​ borrow up to​ 100% financing and in​ certain cases up to​ millions of​ dollars at​ even better rates than many of​ 33/38 programs,​ but which allow for a​ debt to​ income ratio of​ up to​ 55% or​ even 60% in​ some cases,​ whether you​ prove your income through tax returns and W2 forms or​ simply state how much you​ earn. These relaxed debt to​ income ratio criteria allow you​ to​ borrow more easily without the​ fear of​ rejection,​ and the​ better your credit and the​ larger your down payment in​ the​ case of​ a​ purchase or​ equity in​ the​ case of​ a​ refinance or​ debt consolidation the​ more relaxed these criteria can be. Debt consolidation programs can often make it​ much easier to​ qualify if​ you​ mandate that certain consumer debt accounts be directly paid off,​ thereby reducing your monthly consumer debt payments. Contact a​ nationally capable mortgage broker so that you​ have access to​ a​ wide variety of​ programs,​ and be honest with your loan officer about your earnings and debts and things will go smoothly. Remember,​ they want to​ get you​ the​ money you​ need,​ and will work with you​ to​ make sure that happens.

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