What should your debt to income ratio be now that the market

Assalaam143 · Joined: 06 Nov 2008 Posts: 3 1.99 Dollars($)

Also why can't I use my tenants income although I never reported it on my taxes. I have my lease agreement and my tenant has their own utilities. I live on the second floor and also have my insurance declaration page to prove tenents occupancy.

sweeney · Posted: Thu Nov 06, 2008 10:58 am Post subject:

Hello- The DTI will depend on the loan program and the loan to value ratio. As a rule of thumb, 36-38% is a range to work with. Rental income is verified from a 2yr avg from your sched E on your 1040. So if you haven't reported it there, it can't be used as income.

Assalaam143 · Joined: 06 Nov 2008 Posts: 3 1.99 Dollars($)

Since my W-2 is used for my income how will they incorporate my yearly bonus of 6% of my salary. Is this something that they will see when they calculate my salary to the end of the year.

jameshogg · Posted: Thu Nov 06, 2008 11:49 pm Post subject:

Hi Assalaam!

Yes, the annual bonus will be reviewed by the lender and will be considered as a part of your income. By the way do you know how much your DTI is? You can check the following link and get a DTI calculator:
http://www.mortgagefit.com/calculators/diratio.html

Thanks.

Guest

My bills total $1137.00, My gross annual salary is $47060.00 in which I recieve a 6% bonus of my salary every year totaling $2824.

smithsussane · Posted: Sat Nov 08, 2008 12:39 am Post subject:

Hi PW,

With the details that you have given in your post, your DTI comes to 27%. You can also calculate the DTI yourself by referring to the above post made my James Hogg where he has given a link to a DTI calculator.

Thanks

carlpruitt · Posted: Sun Nov 09, 2008 7:05 pm Post subject:

I know it is frustrating when income you know you are receiving can't be counted by the lender. But we have to look at it from their viewpoint just a little.

Unfortunately, anyone can write up a lease and hand it over to the lender and many people have been doing that quite a bit over the last few years. The "secondary mortgage market" - which includes FNMA, FHLMC, GNMA among others - sets the rules that lenders must go by to prove that the borrower is a good credit risk. Unfortunately, a tax return is usually the only way the income can be proven.

Even today, people are being approved for loans with debt ratios as high as 50% (or even a little more) of their gross pre-tax income. In my personal opinion, this is a ridiculous burden to expect that borrower to bear. A quarter of the income coming out for taxes and Social Security, then health insurance, retirement deductions, followed by utilities, insurance, cell phones, gas, food, maintenance, children in school and so on. Then it is okay for the house payment to take up 50% and we still expect that person to survive!

The standard debt ratios for FHA are 29% toward your house payment and 41% for your house payment plus other credit payments. For conventional loans the benchmark debt ratio is 36% but is determined by automated underwriting.

This is just my personal opinion, but in today's real estate environment a person would be very, very smart to stick with a debt ratio of no more than 25% for the house payment.

In your case, your bonus should be included in the information on your last W2 and although you may receive it at the end of the year, you will need to show a 2 year history of having received the bonus in order to count it most of the time. This requirement can be eased by the automated underwriting system.

Guest

hi carl, what's this automated underwriting system? does only FHA follow it?

jameshogg · Posted: Tue Nov 11, 2008 12:29 am Post subject:

Hi kate!

As far as I know, automated underwriting systems employ an "artificial intelligence" to judge the quantitative risk factor to individual mortgage applications. The mortgage broker or lender enters the loan application data into the automated underwriting system and it is combined with a credit report. Based on this, the system gives a "Findings Report". This will indicate whether or not the loan application should be approved, and if approved, what documentation are required to verify the application data. Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) have developed their own automated underwriting systems.

Thanks

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