When applying for a new mortgage, you might be wondering: “What are mortgage loan liabilities?” That’s an important question to answer because a significant number that is used to evaluate your creditworthiness will be your Debt to Income Ratio (DTI.) You can calculate your DTI by dividing your total debts by your monthly (pre-tax) income. A common question then asked is, What debts will affect my DTI and mortgage? Here is a rundown to answer this question.
The Major Debts to Used to Calculate Your DTI
Calculating your debt to income ratio starts with adding up your recurring monthly debts. When considering a home purchase, you should factor in that the new mortgage will be part of your DTI; the lender will be doing so.
Beyond the new home loan, listing your mortgage loan liabilities on your application will include:
- Minimum credit card payments (note it is the minimum, not the total bill)
- Student loans (these have some special rules if in deferment or forbearance)
- Auto loans
- Home Equity Loans (HELOCs)
- Alimony and child support
- Any other monthly debt obligations (personal loans through a bank or credit union, Payday loans, etc.)
What is Not Considered a Debt For Your DTI?
When answering the question: “What is considered monthly debt when applying for a mortgage?” – utilities, cell phones, internet, and cable are not things that show up on your credit report. And, therefore, are not included in your DTI. You must, however, still stay current on all of these because if you miss paying them, they can show up on your credit report as a late payment or a derogatory remark if the account goes into collections. These blemishes can severely affect your credit score for years.
What is a good DTI?
For a qualified mortgage (one that can be backed by Fannie Mae or Freddie Mac), the DTI can be a maximum of 43%. The lower, the better. What lenders really like to see is a DTI lower than 36%. And of the total DTI, ideally, no more than 28% goes towards the mortgage. If your DTI is too high, there are several ways to lower it.
How Can I Lower My DTI?
The only ways to reduce your DTI are by increasing your income or reducing your monthly liabilities. Paying off your debts while not taking on new debt is usually the fastest way.
Knowing what debts will affect your mortgage application is a big piece of the puzzle and can make applying for a mortgage less intimidating. At Homestead, we make the entire process easy for you from start to finish.
Homestead Financial Mortgage’s low-interest home loans are some of the best in the states we serve. We’re licensed in Arkansas, Colorado, Florida, Illinois, Indiana, Kansas, Kentucky, Missouri, Montana, Ohio, Oklahoma, Tennessee, Texas, and Wisconsin. Contact us today to learn more about the home loan products we offer that are right for you.
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