Debt Ratio Calculations Worksheet
Instructions
Gross monthly income
Base pay-gross monthly salary or hourly pay. You can utilize hourly conversion tool on worksheet to calculate gross monthly income by entering hourly rate and hours per week.
Overtime Income-average last 2 years. If you have been receiving overtime for less than 2 years on your current job, don’t enter it on worksheet.
Bonus-average last 2 year’s bonus income. If you have been receiving bonus less than 2 years on your current job, don’t enter it on worksheet.
Commissions-average last 2 year’s net income reported on Schedule C on tax returns. If you have been receiving commissions for less than 2 years and you can’t qualify using base pay you may have to do No Document loan
Self-Employed Sole Proprietor-average last 2 years net income reported on Schedule C on tax returns. If you have been self-employed less than 2 years you may have to do No Document loan.
Other Income-child support/alimony, trust/dividend income, 2nd job, side business, retirement, social security etc. You can use child support/alimony if income will continue for at least 3 years, you can prove you have been receiving payments for last 6 months, and it is court mandated. You can count 2nd or part-time job if you have been working job for 2 years. Additionally, we will average last 2 years for trust/dividend income. Finally, income used for home loan must be reportable unless you are receiving non-taxable income such as Social Security.
Any questions, please contact Gerald Tribuzio at 847-516-5743 for a free phone consultation or email jtrib@firsthomebuyers.net .
Monthly Debts
Please list monthly payment amount for debts. For credit cards, use total minimum payment required for all credit cards and not how much you pay each month. If you have have less than 10 months left on auto and installment loans, then you don’t have to count payment. However, if you have auto lease, then you must count the payment no matter what. Some loan programs require the lender to pick up a payment for student loans, even if they are deferred so enter anticipated payment. If you do not know the payment, utilize student loan payment tool on worksheet. You are allowed to pay down auto and installment loans to balance of 10 months payments remaining prior to closing your loan. However, you can’t pay off credit cards during the loan process. You must pay off credit card debt prior to purchasing a home and applying for a mortgage. Finally, you must get preapproved before house hunting so you can address any credit and debt ratio issues.
Debt Ratios
Please enter mortgage payment including principal and/or interest, taxes, home insurance, condo association fees (if applicable). Go to firsthomebuyerloanpayments and click mortgage payment calculator to calculate mortgage payment and enter it on worksheet. The mortgage payment ratio is simply your mortgage payment divide by your gross monthly income and the total debt ratio is your mortgage payment plus your debt divided by your gross monthly income.
What Does Your Ratios Mean?
Generally speaking, if your total debt ratio exceeds 45-50% then you must contact a loan officer to determine what can be done to get the ratios in line or you may qualify for some programs such as the Flex 100 which has no ratio requirements and I have personally have closed loans with total debt ratios hovering around the 65% mark. Also, there are many stated income or no document loans which does not verify income to qualify. If you have hefty student loans which are deferred for a year or more, some programs will not count those payments in the ratios. Bottomline, consult a professional loan officer to determine what can be done to secure the best home loan to meet your financial needs.