| Debt to income ratios in general are exactly what | | | | Payment + Interest Payment + Taxes + Insurance |
| they sound like, the proportion of your debt to your | | | | + Homeowners Fees (if applicable) - Purchase |
| income. So if you have $5 of debt and $10 of | | | | Mortgage Insurance PMI (if applicable) |
| income, the debt to income ratio test would help | | | | Tip: Many people's mortgage payment includes taxes |
| measure this. Within this general description there | | | | and insurance so do NOT include this if it is already |
| can be many sub ratios such as your front end ratio, | | | | included or make sure to add it in if it is not included |
| total mortgage expenses, and back end ratio, total | | | | in your monthly payment to your lender. |
| monthly expenses vs. total monthly debt. In this | | | | Warning: If you are late on your mortgage your last |
| article we will discuss the front end debt to income | | | | statement may state a figure that includes fees, do |
| ratio for loan modifications. You can read our other | | | | not include these fees when doing your calculation. |
| articles for more info on back end ratios. | | | | #3. Calculate Ratios: |
| Both of these are crucial to understand! You should | | | | Divide TOTAL Monthly Expenses by TOTAL Monthly |
| NOT talk to your bank unless you have first done | | | | Mortgage Expenses. |
| analysis of these on your own! In order to qualify | | | | This value should be over 31% to qualify! |
| for the Home Affordable Modification Program, also | | | | Note: There is still a possibility that you can get |
| known as HAMP, which is part of the Federal Making | | | | approved if your ratio is less than 31% but this will be |
| Homes Affordable Program, you will need a front end | | | | much more difficult. |
| debt to income ratio of OVER 31%! This means | | | | Automatic Services: |
| that if you make $10 a month, you would need your | | | | We highly recommend doing this on your own, but |
| total mortgage expenses to be over $3.10. | | | | we also encourage everyone to double check your |
| Essentially, they believe that it is safe for a | | | | #'s online. offers an amazing and free service |
| homeowner to have 31% of their monthly income go | | | | where you can log in (commitment free, all you need |
| towards paying their mortgage expenses, and if they | | | | is a valid email to register) and get a complete |
| are over that much than they should get Federal | | | | analysis, including debt to income ratios and see |
| assistance. | | | | whether or not you are potentially eligible for |
| Calculating Front EndeDebt to Income Ratios: | | | | mortgage payment assistance via either the Home |
| #1. Calculating Your GROSS Income: | | | | Affordale Modification Program (HAMP) or potentially |
| First calculate your total GROSS monthly income. | | | | an in house lender loan modification program. also |
| Gross is your income before taxes are deducted i.e. if | | | | will do some other complicated assesments as well to |
| you make $2.5 a week, but when you get your | | | | increase your chances of success. |
| paycheck at the end of the week you only get $2 | | | | If you qualify the site then allows you to download a |
| because 0.50 is deducted to pay taxes then use the | | | | FREE lender ready package that is actually lender |
| larger #! | | | | ready! Be able to submit a complete package to |
| Tip: User your most recent paystub! For example if | | | | your lender in under 15 minutes! And get free |
| last year you made $52,000 but you have received a | | | | customer service; get to talk to a knowledgeable rep |
| demotion, make sure that you monthly income | | | | LIVE or via chat. How is completely FREE? We |
| reflects this and do not just divide $52,000 by 12. | | | | work with sponsors and advertisers so there is no |
| WARNING: The banks WILL verify this information! | | | | cost to you! freeHAMPreport.com's goal is to |
| There is no point in trying to overstate or understate | | | | empower America's homeowners to allow them to |
| your income because they will want W2's and | | | | Do It For Themselves, but Not By Themselves! |
| paystubs if you are a W2 employee or Profit and | | | | Although the site does not offer guarantees, if can |
| Loss statements if you are self employed. | | | | guarantee that you would do better than if you |
| #2. Calculating Total Monthly Mortgage Expenses: | | | | submitted it on your own without analysis! |
| Total MONTHLY Mortgage Expenses = Principle | | | | |