Debts

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Debts

There are two calculations. The first or Front Ratio is your housing expense-to-income ratio. This is to say your proposed mortgage payment (principal, interest, taxes and insurance) divided by your gross monthly income. The second or Back Ratio is your total monthly obligations-to-income ratio. This is your gross monthly payment including Mortgage PITI divided by your gross monthly income.
Lenders will review all consumer debt. The total amount of debt will be factored against a consumer’s income to calculate a debt-to-income ratio. If your debt exceeds 45% your monthly gross income, your chances for a loan approval will decrease.

An applicant’s liabilities are reviewed for cash flow. Lenders need to make sure there is enough income for the proposed mortgage payment, after other revolving and installment debts are paid.

Mortgage Payments
Include principal, interest, taxes, hazard insurance, mortgage insurance & hoa fees.

Installment Accounts
Do not count installment loans that have less than 10 months remaining. Lease payment must be included in the DTI regardless of the remaining number of payments.

Revolving Accounts, Credit Cards
Include the minimum payment on all open accounts. Credit card cannot be paid off to qualify; accounts must be paid off and closed.

Co-signed Loans
You will have to include these also unless you can show 12 months of cancelled checks from the person that is paying the loan and the loan must not have any late payments.

Debts paid by Business for Self-employed borrowers
Debts paid by business for self employed borrowers may be excluded from the monthly obligation if you can show 12 months canceled checks that the debt has been paid out of company checks.

Child Support
Must be included in the DTI

Loans from a Previous Marriage
Must be counted unless, your divorce papers clearly divide up the liabilities.

What Not To Include:
Utilities, telephone services, auto insurance, or childcare.