How to calculate the DTI for the new purchase. Do you take into consideration the existing house and the new purchase?
Do not try to do this on your own. Talk to a mortgage lender. It depends on when your current property will be sold. It depends on what payments are reported on your credit report, and even then, some can be looked at in different ways, depending on the loan program. Also, certain lenders can qualify higher ratios.
@Sam
I mostly agree with your comment, except for the last sentence. Higher Ratio mainly depends on which mortgage program not the lender. Certain mortgage companies have access to more mortgage programs than others.
@Bran
Not exactly true. Banks and credit unions tend to restrict their allowable DTI ratio is below what Fannie and Freddie will allow. Depending on the lender, they will underwrite to the raw Fannie and Freddie guidelines and not use the more restrictive DTI ratios.
@Bran
Many lenders have ‘Overlays’ to the existing guidelines that are more restrictive…
It’s all your debt including your current mortgage, auto loans, student debt, and minimum payments to credit cards.
Dell said:
It’s all your debt including your current mortgage, auto loans, student debt, and minimum payments to credit cards.
Thank you for the answer. On the current mortgage, do the insurance and taxes count if they’re not part of the mortgage payment to the bank? Also, if the house is rented, should the rent amount be taken off the mortgage debt?
@Rowan
Yes, it’s an expense. It counts.
@Rowan
Most lenders will allow you to omit the current housing expense if you say that you will be renting out the house. You will need to provide a signed lease and a check for security deposit and first month’s rent from your prospective tenant. Obviously, the rental income will need to exceed the current housing liability.
Are you keeping the existing house or selling it and buying a new one?
Bao said:
Are you keeping the existing house or selling it and buying a new one?
Keep it
Bao said:
Are you keeping the existing house or selling it and buying a new one?
Keep it
Then yes, the mortgage, taxes, insurance, HOA will all be factored into your DTI along with items on your credit report and the new home’s expenses. If you’re renting out your current home, you can use a portion of that rental income to offset the payment. Cheers.
DTI is debts divided by income, with debts being looked at as what’s coming out on a monthly basis. Income is broken into 12 months. Most programs want you to have no more than 45-50% of your income dedicated to debt, including the new house. Your current house only counts towards debt if you are keeping the property. Even if you meet all the parameters, it’s still possible that the underwriting software may reject it. This just gives you a good idea of what loan officers look for.
If you are not selling before you buy, then yes.
I just did this. I’m planning on keeping my house for rental and buying a new primary. 150k income, no debt at all, 259k in equity in my current home or a touch more, I owe 100k on it. Decent amount of liquid capital in bank and investments. Got preapproved for over 500k without needing to have signed rental, a 10% down payment, and no need to include my dividend income. I’m not sure how much more I could go without selling my house.
All income minus all recurring payments is DTI. Often, it’s a range or percentage band you need to be within to qualify for the cost of the house, because mortgage/taxes/insurance, etc., are all part of the ‘cost’ that you would need to still be within the DTI range with consideration for the new mortgage. If you have a current rent/mortgage, that speaks to the current DTI, but they’ll factor the potential new home/totality of cost into the qualification for getting that mortgage.
You take into consideration your new payment, not your old. Include car payment, personal loans, student loans, and minimum payments on credit cards. Don’t include utilities, car insurance, cell phone, and cable bill.