Posted by Andrea Booth on Nov 14, 2016
Lettie Trespasz, a WBG Board Member, has been working in the mortgage industry since 2012. She currently works for Monument Mortgage Co. and is licensed in both MA and NH. Her gift in working with clients is her ability to explain the mortgage process in simple terms. New and transitional buyers who need a patient educator will find one in Lettie. (This article is the second in a series of three.)

Three Keys to Residential Financing: Part 2 – Debt-to-Income (DTI)

by Lettie Trespasz, Loan Officer: Monument Mortgage Co.

Debt: Monthly Liabilities

  • Total all the monthly payments made for liabilities: auto, student (including deferred payments) and credit card minimums.

 

Income: Stable and Predictable

Stable Income has a history:

  • Typically two years or more in the same or similar industry at stable or increasing pay.
  • Graduates will need evidence of area of study and an offer letter or contract in an applicable industry. Often a first paystub is also necessary prior to closing.

 

Predictable Income:

  • Verification of Employment (VOE) will happen approximately 5 times throughout the process as well as on the day of closing and after closing.
  • Start date and knowledge of continuation provided by the HR/Payroll Department is obtained.

 

Calculating Monthly Income:

  • Annual Salary/12 = monthly income (no bonus, no commissions)
  • Semi-monthly: take one gross pay period amount x 24/12 = monthly income
  • Bi-weekly: take one gross pay period amount x 26/12 = monthly income
  • Weekly: take one gross pay period amount x 52/12 = monthly income

 

Monthly Debt-to-Income Ratio:

This number should be no higher than 33% and lower is much better.

The difference between Monthly Debt-to-Income Ratio and 43% is the amount that is left for housing which consists of:

  • Principal & Interest (P&I)
  • Premium Mortgage Insurance if required (PMI or MI)
  • Real Estate Taxes
  • Homeowner’s Insurance (HOI)
  • Condo Association Fee if purchasing a condo

 

43% is a guideline that is flexible, depending on the loan product, program and strength of borrower with regard to FICO score and assets.