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Does anyone know how lenders know what your debt to income ratio is? Do they know when you pay something off and no longer have that monthly debt?
Thanks.
They run a credit check. All your debt (just about) is on there. You state your income and back it up with paystubs. Then they do some fancy math (I don't remember the formula -- seems it was divide your total debt by the income?) and there's your ratio.
For mortgages I have lenders that will go as high as 55% with AUS approval.
This answer of mine makes no sense I misread the OP question.
Your debt ratio is calculated by dividing your your gross income by liabilities on your credit report. Only items on your credit report go towards debt ratio. Things that are not normally on a credit report unless a collection account: medical bills, utitlies, cell phone, gym memberships, insurance, HOA dues.
This answer of mine makes no sense I misread the OP question.
Your debt ratio is calculated by dividing your your gross income by liabilities on your credit report. Only items on your credit report go towards debt ratio. Things that are not normally on a credit report unless a collection account: medical bills, utitlies, cell phone, gym memberships, insurance, HOA dues.
I had it backwards! Math is one of those things I can't explain, but I can usually do..... when I was in banking I had to hand calculate tons of things.... but I can't explain them....
I had it backwards! Math is one of those things I can't explain, but I can usually do..... when I was in banking I had to hand calculate tons of things.... but I can't explain them....
Don't the lenders look at ratio of debt payments to income, as opposed to total debt amount to income?
I know that when buying a house, the 'gold standard' is that no more than 28% of your gross income goes to pay mortgage, taxes and insurance. Of course, during the bubble, lenders went a lot higher, and we see the results. They also looked at total debt payments including mortgage, taxes and insurance (as well as other debts like car loans, credit cards, etc), and the gold standard there was less than 36% of gross monthly income.
I don't know what the criteria is for auto loans and other types of loans. Clearly, it's too loose.
Don't the lenders look at ratio of debt payments to income, as opposed to total debt amount to income?
I know that when buying a house, the 'gold standard' is that no more than 28% of your gross income goes to pay mortgage, taxes and insurance. Of course, during the bubble, lenders went a lot higher, and we see the results. They also looked at total debt payments including mortgage, taxes and insurance (as well as other debts like car loans, credit cards, etc), and the gold standard there was less than 36% of gross monthly income.
I don't know what the criteria is for auto loans and other types of loans. Clearly, it's too loose.
It's been a very long time since I was in banking -- and I worked for a small local bank who didn't go into the crazy lending. We were strict. We didn't handle mortgages, only HELOCs. Our mortgage brokerage was a seperate entity from us. HELOCs were at a 70% loan to value ratio -- far stricter than B of A which at one point offered a 125% LTV. Yeppers -- you could actually borrow more than your property was worth.
And this included your first mortgage. So if you had a house that appraised for 500K with a 200K mortgage on it, we would lend you 150K. (500K x 70% = 350K - 200K = 150K) And only if you had low debt ratio. IF -- and I do remember it happening a few times -- you had your cards charged up the rafters, one of the conditions was that WE paid off your cards with the loan proceeds and you closed them. I do believe that was when we were handling some SBA loans, which frequently used homes as collateral for small business loans.
As a small bank we tended to keep a watchful eye on our customers, and in reality only dealt with the cream of the crop as much as possible. During the first real estate meltdown that I saw as a bank employee, my small bank only had ONE commercial property almost go belly up... and none of our construction loans. The commercial property owner was worked with extensively and ended up selling the property with a small loss.... and we kept the loan in house. Far better than a 4 million dollar write off.
That's the one thing that irks be about people screaming that banks are evil. The big banks? Yeah -- they don't care about us.... but the small banks have our backs. As a small business owner, my bank is committed to help me succeed. Because as I grow, so do they.
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