First Time Home Buying Simplified Episode 6

Episode 6

Hey everybody Scott DiGregorio here, your Mortgage Guy bringing you some more information. Today is all about debt ratio, do you know what debt ratio is? It can be a tricky question for sure. To put it simply, the debt ratio is a driving force if somebody comes to me and says, “Hey Scott, how much do I qualify for?” What they are asking me is a debt ratio question. 

The debt ratio is a mathematical comparison between your debts and your income. You divide your debts into your income, you come up with a percentage. If you make $1000 a month your total debts are 400 a month, 400 divided into 1000 is 40%. When debt ratio is being run, we’re counting the new house you’re buying including taxes, insurance, mortgage insurance have been applied, HOA fees, all of that stuff. Your total housing payment plus whatever else is on your credit report, generally plus child support, plus alimony, plus things like IRS payments there’s a lot there. Divided into your gross before taxes– Sometimes I find myself in situations where people’s debt ratio isn’t quite lining up. They’re exceeding the maximum and debt ratios vary program to program. We then kind of look at a situation where we’re going to reduce some of the debt and that’s how I talk to a lot of different people about, but debt ratio is where it’s at.  

Back in the day, we had stated income loans. The government passed a law that talked about the ability to repay, and the government’s position is that you’re not allowed to make a loan to somebody unless you could document their ability to pay it back. That’s the deal with debt ratios, it really is the driving force. But please understand that things change house to house, somebody comes to me and says “Scott how much house can I buy for $1,800 a month?” It really depends on the house to house, taxes, insurance, things like that alter. The other situation I have sometimes where if somebody is at the very ceiling of their debt ratio and I tell them they qualify for a certain price range of home, well that doesn’t mean they qualify for every home in that price range because again, it may vary from house to house. A lot of times they’ll have people sending me each house they’re interested in and I’m writing by case to see if it works for them.

There are a lot of other details, a little more of the nitty-gritty, but in short, that’s what a debt ratio is. If you have any further questions, reach out to me [239-910-6040]. I’m Scott Digregorio, your Mortgage Guy. I’ll talk to you soon.