Va Debt To Income Ratio Calculator - If you're thinking of buying a home soon, you should familiarize yourself with the debt-to-income calculation. Understanding this simple math formula can mean the difference between being approved or denied for a home loan.
The discussion below explains how this ratio is calculated and how it is used by mortgage lenders to allow people to buy a house.
Va Debt To Income Ratio Calculator
The debt-to-income ratio, also called the DTI ratio by the mortgage industry, is a comparison between the money people make compared to the money spent on debt.
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Shawn and Linda have been married for 3 years and are saving for a down payment. Shawn is an accountant with an annual salary of $60,000 and Linda is an elementary school teacher with an annual salary of $35,000.
They have the following monthly debt payments: a car loan of $376.25, two credit cards of $65 each, and student loan payments of $486 per month. Their total monthly payments
The only thing missing is the estimated monthly payment for their new home. According to their lender, the proposed payment on the house they are considering is $1,285 per month. So, the new census will be
Now that we have explained the math, let's look at some of the details of this calculation and how lenders look at the ratio.
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Most mortgage lenders will review the DTI in two different ways. The first way is to consider only the size of the house. This is also called Front Ratio.
What this means is that the lender will compare the proposed loan amount with the total income. In our example above, the forward rate would be calculated as $1,285 ÷ $7,916.67 = 16.23%
NOTE: The attachment needs to include the estimated amount of the property's annual tax and the owner's insurance policy. Your lender must provide this when you request a loan estimate.
Another way to look at DTI is the calculation we did before, which adds all the debt, plus the proposed loan payment, and divides by the monthly income. This is known as the background ratio.
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Now that we have examined how to calculate the DTI ratio, let's look at the factors that are not included in the calculation.
These items must be paid with the balance of the DTI account. That is why the ratios are established in order to ensure that the borrower has enough money especially after paying the mortgage and other debt.
While it is easy to understand a debt payment such as a car loan or a credit card, other factors are added to the DTI calculation that you may not consider.
If you are responsible or will be responsible for any of the following obligations, these items must be reported to your lender to make accurate DTI calculations.
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You may be asked by your lender to provide legal documents to verify the above monthly payments in order to be approved for a mortgage.
Each type of loan will have slightly different guidelines for their respective DTI reports. Here are some general rules about the main types of home loans.
Anterior DTI and posterior DTI. Anterior DTI should be about 28% and posterior DTI should be less than 43%.
If the borrower has a large down payment or significant savings, the late DTI may be slightly higher.
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- For FHA, the front ratio should not be more than 31% and the back ratio should not be more than 43%
Like Fannie Mae and Freddie Mac, above, it is possible to get approved for a slightly higher rate. But the borrower must have a significant asset on his side to be approved for a higher rate.
- For VA loans, only one report is considered, the return report. The return ratio should not be more than 41%.
It is important to note that VA mortgage regulations are quite strict regarding their DTI rating. However, VA mortgages also have a low percentage of foreclosures, so that may be a reason they adhere to these rules.
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- The USDA will allow borrowers to reach 29% in their front ratio and 41% in their back ratio.
One last point to keep in mind when talking to your lender; some mortgage companies will work with their own brokers. Your lender can discuss these coverages with you, but it is important to note that each mortgage lender may have a set of unique rules that must be followed when applying for a loan.
If you are looking at your finances and realize that you have too much debt to prepare to buy a house, there are several things you can do to lower your debt to income ratio and put you in a better financial position.
The easiest solution is to pay off as many debts as possible. The tried-and-true method of starting with a small balance and paying it off, then moving on to the next larger balance, will help you pay your bills and give you satisfaction during the process.
Debt To Income (dti) Ratio Calculator
Another option is to supplement your income. This can be as difficult as looking for a better paying position in a different company, but doing the same job you are doing now. Or it could be as simple as working a few hours of overtime per week at a current job.
I work part time. Keep in mind, if you have a part-time job and want to use that income in your DTI calculations, you need to have a job for a few years before the engine considers the income.
A third idea is to add another person to the loan. The FHA, along with Fannie Mae and Freddie Mac, have non-residential mortgages that allow a borrower to take out a loan if the borrower does not plan to live in the home. Your lender can provide details on the different types of loans and the payment requirements for each loan.
The debt-to-income calculation is easy to understand. The most important thing is to understand that the payment of the proposed mortgage and any existing loan payment play a major role in the approval for a home loan. By keeping these ratios low now or working to lower the ratio, you will give yourself a better chance of getting approved for a home purchase.
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For the first time home buyer, the above information is important to know how much house you can afford, but there is more than just the amount. Check out this post by Kevin Vitali to learn what other steps first-time home buyers should take to make the home ownership journey a success.
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