Jeremiah Phillips of First Mutual Corp

Qualifying for a mortgage: Debt to income

Today everyone is hearing the words DTI- Debt to Income.  What does this mean you ask?
This is a part of how the mortgage industry qualifies someone to see if they can afford the mortgage they are applying for.

How it works:
You divide your Monthly Gross Income (Gross Income is before taxes are taken out) by your new housing payment plus all installment/revolving and legal (child support/alimony) debts. You then take that result and multiple by 100 to get the DTI Ratio.

Example: If you make $60,000 a year that is $5000 a month.  If your new house payment is $1500 (this includes taxes, homeowners insurance and PMI if applicable) + $400 (car payments, credit card minimum payments) it would look like this:
$1900 / $5000 = .38 Multiple by 100 = 38%. (GOOD RATIO TO HAVE)

A good ratio to have to qualify for your standard mortgage with out any other factors being considered should be below 42%.  When you start going above that other factors could result in getting approved for the mortgage or not. 

The easiest way to see if you qualify is to give me a call at 888-331-6300 Ext. 566 and in about 10 minutes and going through your information I will be able to tell you what you qualify for to purchase or refinance a home.

How does one get out of a mortgage that is adjusting to a payment you can not afford?

The answer is FHASecure Iniaitive! 

This new plan to help nearly 250,000 people save their home from adjustable rate mortgages that reset too high.

Here are the highlights of the FHASecure Initiative:

1. The mortgage being refinanced must be a non-FHA ARM that has reset.   Your loan must have adjusted already to be eligible.

2. The mortgagor’s payment history on the non-FHA ARM must show that, prior to the reset of the mortgage, the mortgagor was current in making the monthly mortgage payments.  You can be late on your mortgage but you must prove that you were not late prior to the reset and that the reset is the only reason why you have lates now. 

3. If there is sufficient equity in the home, under additional eligibility instructions provided below, FHA will insure mortgages that include missed mortgage payments.  If you are on a plan with missed mortgage payments that need to be paid, they can be rolled into your new loan, so long as you have enough equity.

4. Under certain conditions explained below, FHA will insure first mortgages where (1) the existing note holder writes off the amount of indebtedness that cannot be refinanced into the FHA insured mortgage; or (2), the FHA-approved lender making the new mortgage or the existing note holder may take back a second lien that includes closing costs, arrearages or previous secondary financing.  

Let’s say you owe $300,000 on your home but its only worth $270,000 today.  You can get a new FHASecure loan for $261,900 and a new loan for $38,100 from your new lender or the current holder of your mortgage if they will go for it.   This new note terms and payments have to be factored into your qualifying ratios but if they are deferred for 36 months, they don’t have to be.    These combined loans can exceed 100% and can exceed the FHA loan limit in your area.

5. Lenders must determine, as part of the underwriting process, that the reset of the non-FHA ARM monthly payments caused the mortgagor’s inability to make the monthly payments and that the mortgagor has sufficient income and resources to make the monthly payments under the new FHA-insured refinancing mortgage.

The bottom line is this is not a free pass.  If you are late only because your ARM adjusted and you can prove it, this program is the best way to save your home and your credit.

However, this is a terrific new program and once again demonstrates why FHA has been with us for decades.