Home Buying in Nashville>Question Details

Robert Pelosi, Home Buyer in Nashville, TN

Does current rent factor in to debt-to-income ratio? What about approximate monthly expenses (gas, groceries, utilities, etc.)?

Asked by Robert Pelosi, Nashville, TN Fri Nov 30, 2012

First time home buyer trying to approximate my debt-to-income ratio. I know that monthly recurring debts divided by gross monthly income is the formula. I am just not sure whether or not to include my current rent (because I won't be paying it once I buy a home). Also do I need to estimate other monthly expenses that aren't "real debt" but in actuality can be expected to come out of my income?

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Answers

5
Robert,

You will only include what reports to the credit bureaus and your new mortgage payment (with taxes, insurance, and possibly mortgage insurance depending on the product) in the debt-to-income ratio. Also be sure that you are using your GROSS monthly income when calculating that ratio. I'm a licensed mortgage broker in Tennessee and would love to help if you have any further questions!

Sincerely,

Corey Petree
Loan Officer
Loan Simple
(423)760-3861
cpetree@loansimple.com
1 vote Thank Flag Link Fri Nov 30, 2012
First let me say Congrats for thinking ahead and preparing for your big investment. Asking good questions puts you ahead of many first time buyers. I know it can be a little daunting, but you are well on your way. It will all be worth it on moving day!

Any of your debts that report to credit bureaus would count in your debt to income ratio, along with your new mortgage payment. Debts to consider would include student loans, credit cards, auto, and any other installment payments.
With a simple call to a mortgage broker, they could walk you through a simple process, letting you know what price range home would work for you. It's free and is well worth the few minutes it would take.
If you have someone you know already, give them a call. If not, here is a contact that a number of my clients have used and have been very pleased with. Use his live link to his website for additional information.

Mike Steplowski
Home Mortgage Consultant
Wells Fargo Home Mortgage
Tel (615) 772-7823
Mike.Steplowski@wellsfargo.com
http://www.wfhm.com/mike-steplowski
1 vote Thank Flag Link Fri Nov 30, 2012
Your current rent won't count, but your new mortgage payment will. As for debts, I believe you only count the ones that will take more than 6 months to pay off. But I'm not 100% sure about that. Any reputable mortgage broker will be able to easily calculate your debt to income ratio (for free). They will pull your credit and ask for your most recent paycheck stubs as well as your past two years of tax returns.
1 vote Thank Flag Link Fri Nov 30, 2012
All good answers. I have helped many first time home buyer's find homes.
Calculate your monthly (rent/mortgage) in the ratio.
0 votes Thank Flag Link Sun Jan 27, 2013
Gary, its called personal responsibility... buy what you can afford. No one should be able to tell you what you can afford.
Flag Mon May 30, 2016
In addition to my post below, I've used the various calculators online to see how much I can afford for a modest home loan or personal loan. It's laughable because while I have no debt, I can pre-qualify for one, with gross or net. However, when I factor in my reality of monthly obligations, using net income or gross income, well, lets just say the differences in the result figures blow my mind. I would wager that the debt-to-income ratio formula is not realistic in today's world of rising costs and stagnant wages for many borrowers. What does one do?
Flag Sun Mar 27, 2016
I asked the same question and my browser brought me here. It seems disingenuous or perhaps delusional might be a better word, that you would just include 'debt' and not also factor in what you do have to pay monthly, such as your electric bill average, your gas, water, trash, auto and life insurance, phon
e bill, the average of what you spend on groceries which can also be huge. Then there is what you average on fuel each month, healthcare costs not covered by insurance and your healthcare premiums, or anything else that is necessary to live a stable life. If you don't or can't pay those bills, it usually means you can't afford them and you may lose them, right? Also, I don't get why lenders base the income on gross rather than net. If I did not factor in ALL my monthly costs and subtract from my net income earned that month, I would really be in trouble. If lenders did this and apartment management did this, they wouldn't have as many clients in default.
Flag Sun Mar 27, 2016
Robert -

Basically everything that you mentioned will NOT count in the DTI formula. Anything you HAVE to pay for will most definitely count (IE credit cards, school loans, car payments, etc.). Instead of going through the specific lists of items that will and won't count, I'd call a reputable lender and give him/her the basic info. I personally use a couple solid lenders. If you'd like their contact info please let me know. Good luck on your first time purchase and good job on the research beforehand.

Stephen Strickhausen
Benchmark Realty
615-480-5770
SStrickhausen@gmail.com
http://www.sstrickhausen.com
0 votes Thank Flag Link Sat Dec 1, 2012
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