Debt to Income Ratio (DTI) - Modificaitons

Home Affordable Foreclosure Alternatives Program (HAFA) is a part of the making homes affordable program. We here a lot of negative talk about modifications because the process and be long and drawn out for months. But, I gotta tell ya, If you just hang in there, in the end, it's all worth it.

What I want to talk about today is Calculating your Front-End and Back-End Debt to Income Ratio (DTI). I seen this time and time again when an applicants DTI is either too high or too low and the application be declined. So, to understand DTI, your house payment or PITIA (principle, interest, taxes, insurance, association fees) cannot exceed 31 percent of your gross monthly income. The DTI comes in two scenarios:

Front-end DTI ratio is based on your house payment. (Under the Obama plan, the front-end DTI target of 31 percent accounts only for the first mortgage. If you have other loans against your home, such as a second mortgage or home equity line of credit, you account for those separately as part of your back-end DTI.)

Back-end DTI ratio is based on all monthly debt payments combined, including your house payment, credit cart payments, payment on auto loans, etc.
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To calculate your front end DTI ratio, divide your house payment by your gross monthly household income:

House payment/Gross Monthly Household Income = Front-End DTI Ratio

(If you pay property taxes, insurance, and homeowner association fees separately, then add them all up, divide by 12 months, and add the result to your monthly household income)

Note: Private Mortgage Insurance (PMI) payments fall outside this calculation under President Obama's guidelines.
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To calculate your back end DTI ratio, add up all your monthly debt payments, including:

~House payment or PITIA, as discussed in the previous section
~Any payments on second mortgages, home-equity loans, or home-equity lines
~Credit card payments
~Auto loan or lease payments
~Alimony
~Other payment on credit accounts or loans

Now, divide your total monthly debt payments by your total gross monthly household income:

Monthly Debt Payments/Gross Monthly Household Income=Back-End DTI Ratio

Keep in mind that only lenders, investors, and servicers who choose to participate in this program are bond by its guidelines and that the guidelines may change over time. Your lender may have its own DTI ratio targets and limitations. So, I suggest that when calling your loan servicer to inquire about a loan modification ask what are their DTI Ratio guidelines, then do what you have to do to make your finances fit their qualifications.