How is DTI ratio determined on a mortgage refi application?
Recently I applied for a home mortgage refi. However, I was informed by the lender that my DTI was too high for them to assist me. "Call us back when you have those credit cards paid down." I figure I only have a 6% DTI, which, to the best of my knowledge, is far below what lenders require. Basically, I have three credit cards on which I am carrying a balance, and the monthly minimum combined payments come to about $75. My income is around $1150.
Thank you for your inquiry. DTI is determined by taking whatever secured debt you have (generally those on your credit report) against your income, represented as a ratio based on a monthly amount. For example, if you say your minimum monthly payments for credit cards is a combined $75 (and you have no other monthly secured debt), and your income is $1,150 monthly, then the DTI in this case would be 6.52% (75/1,150) and your number would be accurate. Fannie Mae & Freddie Mac will still generally accept DTI's up to 45%, but the new QM rules will drop that DTI down to a 43% maximum. I cannot speak for how the lender you called is calculating your DTI, nor do I have knowledge of what loan product you are seeking out or the status of your credit, however it would appear that if the numbers are correct above, your DTI should qualify. Hope this helps. | 02.21.14 @ 19:48
Your housing costs, including taxes, insurance, PMI, and HOA dues, if applicable, are also part of your debt ratios. If your "qualifying income" is $1150, to reach a 45% debt ratio, your total obligations, including credit card minimum payments and all housing expenses, would need to be $517.50 or under. Certain loan programs, such as FHA and VA loans, allow for higher debt ratios. In addition, borrowers can pay off/down liabilities to reduce their debt ratios, that's a common way of increasing purchasing power! Hope that helps. Ted | 10.27.15 @ 19:39
That lender should have taken the time to explain better.
$1150 X 44% = $506 - 75 = $431 available for mortgage, property taxes, fire and HOA | 10.27.15 @ 20:35