Can I Teach You the Importance of DTI Ratios??

Lakewood, California

If I were to ask you about  DTI ratios, you would likely respond with ” what did you say? my what ratios?!”  “Are you speaking a foreign language?” Nevertheless, when Lakewood homeowners are conteplating  their foreclosure options, you will need to understand  DTI ratios. Lenders/ Banks will be going over these ratios with a fine tooth comb, to determine homeowners eligibility for loan modification and other debt relief.

You need to know what your debt-to-income (DTI) ratios are, as this will be critical to determine an affordable house payment.  Our President Elect foreclosure prevention plan,  defines an affordable house payment as one that is no higher than 31 percent of the homeowner’s front-end DTI. To clarify that statement means the house payment or PITIA (principal, interest, taxes, insurance, and any association fees) on the first mortgage cannot exceed 31 percent of the household’s gross monthly income.

 I encourage you to examine both your front-end and back-end DTI ratios:

 
• Front-end DTI ratio is based solely on the mortgage payment. (Under the President’s plan, the front-end DTI target of 31 percent accounts only for the first mortgage. If the home has other liens against it, such as a second mortgage or home equity line of credit, those are accounted for separately as part of the back-end DTI.) 
• Back-end DTI ratio is based on ALL monthly debt payments combined, including the house payment, credit card payments, payments on auto loans, and ALL OTHER loan payments.

 So How Do I Calculate the Front-End DTI Ratio?  The formulas for calculating DTI ratios are  quite simple. To calculate your front-end DTI,  divide your house payment by your monthly household income (gross income): House Payment / Gross Monthly Household Income = Front-End DTI Ratio This should be simple, assuming the monthly house payment includes an amount held in escrow to pay the property taxes, homeowner’s insurance, and any association fees. This payment is referred to as PITIA (principal, interest, taxes, insurance, and association fees). If you pay property taxes, insurance, & association fees separately, you have to perform an extra step.  Total these additional annual expenses, divide by 12 months, and add the result to your monthly house payment (principal and interest).  Divide the resulting house payment by your monthly household income to determine your front-end DTI ratio.

Calculating the Back-End DTI Ratio To calculate the back-end DTI ratio,  total your monthly debt payments, including:

 
• House payment or PITIA 
• Any payments on second mortgages, home-equity loans, or home-equity lines of credit 
• Credit card payments 
• Auto loan or lease payments 
• Alimony 
• Other payments on credit accounts or loans

Now, you should divide the total monthly debt payments by your total gross monthly household income: Monthly Debt Payments / Gross Monthly Household Income = Back-End DTI Ratio Exploring DTI Ratios under Obama’s Foreclosure Prevention Plan The Home Affordable Modification Program accounts for both front-end and back-end DTI ratios. When attempting to reach the 31 percent target for the front-end DTI, the focus is only on the first mortgage:

 
• For qualifying homeowners, the lender will have to first reduce payments on the first mortgage to no greater than a 38 percent front-end DTI ratio. Treasury will match further reductions in monthly payments dollar-for-dollar with the lender/investor, down to a 31 percent front-end DTI ratio. 
• Borrowers who qualify for a modification but would have a post-modification back-end DTI ratio greater than or equal to 55 percent, will be provided with a letter stating that they are required to work with a HUD-approved counselor. The modification will not take effect until they provide a signed statement indicating that YOU will obtain counseling.

Keep in mind that only lenders, investors, and servicers who choose to participate in this program are bound by its guidelines and that the guidelines may change over time, not every lender, servicer, investor may participate in this program. Different lenders may have their own DTI ratio targets and limitations.

When Lakewood, California homeowners are in default or near default, I encourage you to explore these options. Now that your able to calculate the DTI ratios,  you have one more tool that will hopefully empower everyone to assess their options, keep your house, and preserve your American Dream of Home-ownership.

Please give me a call to discuss this further, as their are plenty of options. Please don’t walk away from your house without speaking to me first, because I can help you save your home, and if I can’t I can help you find the best available solution.

Every situation is different, so Please call me.

Regards,

Bernie Germani