Your Need to Know Guide to the Debt to Income Ratio

Posted on February 02, 2018

  “Clients ask me for recommendations all the time, so I’ve put them all in one place that you can access anytime. It’s completely free!” View here As a functioning adult, you know there’s something about debt that you’re supposed to understand at this point in your life, right? Something about not having too much, or maybe not too much in relation to something else… but frankly, this stuff is kind of confusing and some days you’d just rather take your Visa, buy a pizza, have a massage and then take a nap. Today, though, you’re on a quest. You’ve decided it’s time to stop renting and become a homeowner. You came here to get some really good information on how to do just that… so, let’s put the credit card away and talk about your debt to income ratio and why it matters to your future mortgage. What is My Debt to Income Ratio? If you’re not familiar with the term, don’t be shy, it’s one of the most common questions that first time homebuyers have when applying for a mortgage. That’s because there aren’t a lot of places where it’s obvious that your debt to income ratio is being used to determine your ability to get credit. It’s sort of figured out behind the scenes and you’re none the wiser. At a very basic level, your debt to income ratio is simply what it sounds like, all your long term, semi-permanent debt compared to your current income. Usually your mortgage lender will do this as a monthly comparison to make it easy, but the ratio’s the same whether you compare month to month or year to year. If you have $1,200 a month in debt and $5,000 a month in income, that’s the same as if you had $14,400 in yearly debt and $60,000 in yearly income. Both come out to 24 percent, which is a pretty good debt to income ratio. But, of course, it can’t be that easy, can it. What’s Included in a Debt to Income Ratio? Things that are included in your debt to income ratio are secured loans like a car loan or a boat loan, which are sort of guaranteed by the property that you’ve borrowed the money to purchase; unsecured loans like credit cards and lines of credit; student loans and any debt you’ve co-signed. Let me repeat that last thing. Any debt you’ve cosigned is part of this figure. So, if you agreed to cosign a loan for your sister 20 years ago and she’s still paying on it, that’s still going to count against you, even though you’ve totally forgotten about it. If you’re on a joint account with your ex-husband, you’re still on the hook when it comes to debt to income. Things that aren’t included, that are almost always assumed to be, are items like your car insurance, your utility bills, your cable bills, subscriptions and so forth. Basically, if you can cancel the payment at will (whether or not there are serious consequences like having no lights or being able to watch Game of Thrones), it’s probably not going to be included on your credit report unless you fail to pay as agreed. While you’re at it, it might be a good idea to go ahead and get yourself a credit report from a reputable site like MyFICO.com, the Fair Isaac website, just so you can see what is actually reporting. Adding It All Up Figuring your debt to income ratio is pretty easy, the hardest part is figuring out what counts and what doesn’t. Just add up your monthly expenses and divide by your monthly gross income, before any taxes, insurance, 401k withdrawal and the like come out. There you go. That’s your debt to income ratio. Now we can do some stuff with it! There are three major programs that most home buyers utilize across most of the United States. These are the FHA, VA and Conventional mortgages. Each has its own requirements and debt to income ratio ceilings. Some are more complicated than others. FHA and Front End and Back End Ratios For FHA, there are two kinds of debt to income ratios to keep in mind. One is called the front-end ratio, the other is, unoriginally, named the back-end ratio. The front-end ratio is only your potential future housing debt; the back-end ratio includes all your debts. With that in mind, the chart below shows how you’d look to an FHA lender as of the writing of this blog. The first number in the column labeled “Maximum Qualifying Ratios (%)” is the front-end ratio, the second is the back-end ratio. Compensating factors can be thought of as other things you bring to the table to make you into a really awesome borrower. Since you have little to no experience at this mortgage thing, your FHA lender is understandably afraid of your eventually missing a payment in the 30 years you’re going to have a relationship, so they want evidence to show that you’re a stand-up kind of person. FHA loan debt-to-income guidelines. Source: HUD Handbook 4000.1 Fannie Mae and DTI Conventional loans are a bit easier. Fannie Mae is the principal agency that guarantees what’s known as a “conventional” or “conforming” loan. Fannie has siblings like Freddie Mac and Ginnie Mae, but they’re at the movies right now and we’re not going to involve them in the conversation. For our purposes, conventional loans are all about Fannie Mae. In general, conventional loans tend to be more difficult to land, in part because they have more rigid income to debt requirements. For borrowers with credit scores of 680 or better and less than a 25 percent down payment, Fannie won’t allow more than a 36 percent debt to income ratio (but she only uses the one number, so at least it’s not more complicated than that). If your credit score is above 700 and your down payment is less than 25 of the home’s price, she’ll allow a 45 percent debt to income ratio. When it comes to Fannie, bringing more money to the table will absolutely catch her eye. She believes firmly that all things that glitter are definitely gold. That magic number is 25 percent of the sales price of your home. So, if you’re floating in cash, but have a higher debt to income ratio or a little bit lower credit score, you could win brownie points this way. Veterans Get More Leeway If you’re a military vet and you’ve not used your VA mortgage benefits, you may be wondering about cashing in that particular chip. When it comes to the debt to income question, it’s a harder one to answer. Generally speaking, the VA wants to see a debt to income ratio below 41 percent, but like with other qualifiers under VA, the rules aren’t really all that hard and fast. VA loans tend to be a lot more flexible in general, and debt to income ratios are no exception. Although all the loans mentioned in this blog can be manually underwritten, the guidelines only allow for so much deviation outside the rules. VAs give a lot more wiggle room, so if you’re at a 45 percent debt to income ratio, for example, it might not be out of the question if everything else is in line. Time to Go Apply What You’ve Learned Figuring out your debt to income ratio is just one of the very first steps you should take on your path to getting a mortgage. Once you can see how much each of your debts affects your ability to get a home loan, you can either refinance those debts into loans with better terms or work extra hard to pay them down before approaching a mortgage lender. When you’re ready, or if you have any questions about your debt to income ratio, it’s easy to get a quick answer with HomeKeepr. Your Realtor has already recommended some trusted mortgage pros in the community, just log in to make a connection that will make your home buying experience an easy one. Connect with my favorite local pros Sign Up Already using HomeKeepr? Sign In 0 Comments 37 Likes 0 Shares SharesSharesSharesSharesShares About HomeKeepr HomeKeepr is a full suite of home maintenance and management tools including a directory of highly referred home service pros, recommended to you by your favorite local expert. Hire a Pro? HomeKeepr’s Pros are all hand-picked by local experts who know the best people to work with in your community.Find a Pro Today Related Posts Stand and Be Measured: What is a FICO Score Anyway? 7 Tips for Filling Your Home-Buying Piggy Bank to the Brim Are you a Pro? Do you want to network with HomeKeepr’s community of Realtors and Homeowners? Fill in the brief form below and we’ll reach out. Email 0 Comments Leave a reply Your email address will not be published. Required fields are marked * * * We make it easier for homeowners to buy, sell, and own a home by providing them with an All-Star team of recommended home service professionals. Blog Your Need to Know Guide to the Debt to Income Ratio Light It Up! Home Lighting Matters Video Doorbells: Say Hello to Your Virtual Doorman Mobile Apps iPhone Android Contact HomeKeepr 1280 Wall Street West Suite 306B Lyndhurst, NJ 07071 (800) 620-5529 info@homekeepr.com ©2018 HomeKeepr, All Rights Reserved Terms Privacy Contact Read More >>

Video Doorbells: Say Hello to Your Virtual Doorman

Posted on January 27, 2018

“Clients ask me for recommendations all the time, so I’ve put them all in one place that you can access anytime. It’s completely free!” View here Everywhere you look, new smart home technology seems to be popping up. Security cameras that can tell friend from foe and UPS delivery man from the neighbor’s dog, door locks that only need a smartphone to unlock them and thermostats that can adjust themselves to keep you comfortable all day and night are just a few of the most popular offerings in this segment, but there’s another piece of tech that’s gaining in popularity: the video doorbell. But what good is a video doorbell when you can peek out through the front blinds, really? Video Doorbells Are More Than Just a Ding Dong Forget everything you know about doorbells and prepare to be amazed. Well, at least, prepare to be informed and maybe you can remember a few things you knew about doorbells and we’ll just keep that between us. A video doorbell does do all the things that an old-fashioned doorbell does, but it goes well beyond just giving guests a convenient way to ring your bells to announce their arrival. In fact, you can configure your video doorbell to not ring at all. This is especially helpful if you have small children or especially anxious dogs, both of which will begin their own alarming at the sound of the old door chime. With a video doorbell, your smartphone can be the chime box, buzzing, beeping or lighting up when someone arrives and presses the button. But beyond this point is where it gets very un-doorbell-like. Video doorbells combine the concepts of doorbell, intercom and security camera. So, when someone does buzz your smartphone, you can have a two-way conversation with them, even if you’re not home. Delivery guy show up early? Just tell him to leave the box on the porch and you’ll be there soon. Neighbor kids running around ringing doorbells after dark? You’ve got ‘em on video, now you can help the Neighborhood Watch figure out which parents to confront. 3 Reasons You Need This Tech Anyone who’s dipping a toe into the world of smart homes needs to look into a video doorbell early into their adventure. Unlike, say, a smart light bulb, it’s a one-and-done piece of tech that is immediately useful and it’s a pretty simple install, giving you a huge confidence boost if you’re going to DIY it. There are lots of reasons to go for the video doorbell, here are a few of our top picks: 1. You’ll always know who’s coming and going. Anyone with kids, especially tweens and teens, knows the pain of having people running in and out of the house constantly. It’s bad enough when you’re home, but who’s coming and going when you’re not home? Sure, your daughter said that she was studying with Jessica tonight while you’re working late, but did she really invite Tommy over instead? Now you’ll know, and have a video record, of who’s been knocking at the door. 2. No more running to the door for false alarms. Whether you have overly-enthusiastic pets or are simply waiting for party guests while grilling on your back deck, running back and forth to the front door is exhausting. Stop doing that. A video doorbell lets you relax in the knowledge that your actual, real guests will chime in when they’ve arrived, so you can tell them to come around back or that you’re coming and will be at the door soon. You can give Fido the night off, if he’ll take it. 3. Less stress in those “just in case” moments. Everybody’s had one of those days when they’re running a bit late to meet someone at home, be it a salesperson, a friend or a family member. They’re left standing on the porch, wondering what to do next while you’re driving frantically in the hopes you’ll reach home before they leave. Save yourself and the other drivers on the road — the video doorbell will give you a way to let your visitor (or child who forgot their keys again) know that you’re on your way and will be there very soon. Remember, safety first. So You Wanna Buy a Video Doorbell There are currently several big names in video doorbells on the market, as well as some that are still in pre-order, but are heavily anticipated. The models listed here are just a few of the offerings available, just to give you an idea of what to expect when you go shopping for video doorbells. It’s not meant to be comprehensive by any means. But if you wanna buy a video doorbell, you have to start somewhere, right? Take a look at these three doorbells before you head out to Best Buy or log on to Amazon: Nest – Hello Smart Wi-Fi Video Doorbell. $229.99. Currently in pre-order, this is the first Nest-native video doorbell, meant to mesh seamlessly with the new Nest security suite and the Nest Learning Thermostats. It utilizes the Nest IQ software to identify friends and family, records all day and all night long in high definition and has a 160 degree diagonal field of view. You’ll have to have an existing doorbell to power this model, however. Ring – Video Doorbell Pro. $246.99. Ring has several doorbells on offer, this is one of the latest and trimmest in the line. Set custom motion zones to trigger motion alerts to your smartphone, with live video options day or night. It also offers a 160 degree view of your porch, records in HD and requires existing doorbell wiring to function. Skybell HD – Wi-Fi Video Doorbell. $199.00. If you prefer your doorbells a little more circular and futuristic, then Skybell already fits your aesthetic. Much like the other doorbells mentioned, it records in HD, 24 hours a day, features a motion sensor that will alert you to activity on your porch and lets you speak to your guests, even if you’re in another country. It also offers color night vision, as well as a theft guarantee, so if someone comes and steals your doorbell, the company will replace it for free. Also like the other doorbells listed, you’ll need existing doorbell wiring for success with the Skybell. If you read all of those descriptions and were disappointed because you don’t have doorbell wiring, don’t despair. An innovative, battery-powered video doorbell meant to rival those bells above is coming soon, according to the manufacturer. Blink will run on batteries where necessary, so you’ll soon have that option. Want a Smart Doorbell, But DIY Not Your Jam? Video doorbells are more than a convenience, they can literally prevent theft, protect your family and even help improve your productivity if you’re one of the millions of people who work from home. But DIY isn’t everybody’s jam and that’s ok, that’s why there’s HomeKeepr. Just log in and you’ll find a list of recommended home pros who can help you choose and then install your new video doorbell in no time. HomeKeepr’s there for the big jobs and the small ones, even video doorbells. Kris Hanson Keller Williams Realty (314) 960-2733 Send Email Visit Website License #: 2003008860 Connect with my favorite local pros Sign Up Already using HomeKeepr? Sign In About HomeKeepr HomeKeepr is a full suite of home maintenance and management tools including a directory of highly referred home service pros, recommended to you by your favorite local expert. Hire a Pro? HomeKeepr’s Pros are all hand-picked by local experts who know the best people to work with in your community.Find a Pro Today Read More >>

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