"Serious sport has nothing to do with fair play. It is bound up with hatred, jealousy, boastfulness, disregard of all rules and sadistic pleasure in witnessing violence. In other words, it is war minus the shooting."
Credit Card Debt after Divorce It is true that marriages are made in heaven. But everything falls flat on their butt once a marriage hits the rocks. Every bit of reconciliation fails and divorce seems to be the only way out. If everything - both financial and other aspects - is settled ... Loans are not just for Christmas. Surviving the holiday debt hangover. Christmas is coming - A time for decorations, songs, over-eating, gift giving, visiting the family, consumer spending and the increasing of personal debts. Bah humbug. While most people see Christmas as a joyful period there are many who see it as a time ... Settle your debts the easy way The process of contacting creditors directly or through a third party and negotiating for a lump sum payoff of your debts is known as debt settlement. Benefits of debt settlement * You can reduce your principal debt amount by around 40% to 60%. * ...
Debt-to-Income Ratio - It's Just as Important as Your Credit Score When You're Shopping for a New Home
Your debt-to-income ratio (DTI) is a simple way of calculating how much of your monthly income goes toward debt payments. Lenders use the DTI to determine how much money they can safely loan you toward a home purchase or mortgage refinancing. Everyone knows that their credit score is an important factor in qualifying for a loan. But in reality, the DTI is every bit as important as the credit score.
Lenders usually apply a standard called the "28/36 rule" to your debt-to-income ratio to determine whether you're loan-worthy. The first number, 28, is the maximum percentage of your gross monthly income that the lender will allow for housing expenses. The total includes payments on the mortgage loan, mortgage insurance, fire insurance, property taxes, and homeowner's association dues. This is usually called PITI, which stands for principal, interest, taxes, and insurance.
The second number, 36, refers to the maximum percentage of your gross monthly income the lender will allow for housing expenses PLUS recurring debt. When they calculate your recurring debt, they will include credit card payments, child support, car loans, and other obligations that are not short-term.
Let's say your gross earnings are $4,000 per month. $4,000 times 28% equals $1,120. So that is the maximum PITI, or housing expense, that a typical lender will allow for a conventional mortgage loan. In other words, the 28 figure determines how much house you can afford.
Now, $4,000 times 36% is $1,440. This figure represents the TOTAL debt load that the lender will permit. $1,440 minus $1,120 is $320. So if your monthly obligations on recurring debt exceed $320, the size of the mortgage you'll qualify for will decrease proportionally. If you are paying $600 per month on recurring debt, for example, instead of $320, your PITI must be reduced to $840 or less. That translates to a much smaller loan and a lot less house.
Bear in mind that your car payment has to come out of that difference between 28% and 36%, so in our example, the car payment must be included in the $320. It doesn't take much these days to reach a $300/month car payment, even for a modest vehicle, so that doesn't leave a whole lot of room for other types of debt.
The moral of the story here is that too much debt can ruin your chances to qualify for a home mortgage. Remember, the debt-to-income ratio is something that lenders look at separately from your credit history. That's because your credit score only reflects your payment history. It's a measurement of how responsibly you've managed your use of credit. But your credit score does not take into account your level of income. That's why the DTI is treated separately as a critical filter on loan applications. So even if you have a PERFECT payment history, but the mortgage you've applied for would cause you to exceed the 36% limit, you'll still be turned down for the loan.
The 28/36 rule for debt-to-income ratio is a benchmark that has worked well in the mortgage industry for years. Unfortunately, with the recent boom in real estate prices, lenders have been forced to get more "creative" in their lending practices. Whenever you hear the term "creative" in connection with loans or financing, just substitute "riskier" and you'll have the true picture. Naturally, the extra risk is shifted to the consumer, not the lender.
Mortgages used to be pretty simple to understand: You paid a fixed rate of interest for 30 years, or maybe 15 years. Today, mortgages come in a variety of flavors, such as adjustable-rate, 40-year, interest-only, option-adjustable, or piggyback mortgages, each of which may be structured in a number of ways.
The whole idea behind all these newer types of mortgages is to shoehorn people into qualifying for loans based on their debt-to-income ratio. "It's all about the payment," seems to be the prevailing view in the mortgage industry. That's fine if your payment is fixed for 30 years. But what happens to your adjustable rate mortgage if interest rates rise? Your monthly payment will go up, and you might quickly exceed the safety limit of the old 28/36 rule.
These newer mortgage products are fine as long as interest rates don't climb too far or too fast, and also as long as real estate prices continue to appreciate at a healthy pace. But make sure you understand the worst-case scenario before taking on one of these complicated loans. The 28/36 rule for debt-to-income has been around so long simply because it works to keep people out of risky loans.
So make sure you understand exactly how far or how fast your loan payment can increase before accepting one of these newer types of mortgages. If your DTI disqualifies you for a conventional 30-year fixed rate mortgage, then you should think twice before squeezing yourself into an adjustable rate mortgage just to keep the payment manageable.
Instead, think in terms of increasing your initial down payment on the property in order to lower the amount you'll need to finance. It may take you longer to get into your dream home by using this more conservative approach, but that's certainly better than losing that dream home to foreclosure because increasing monthly payments have driven your debt-to-income ratio sky-high.
About the author:
Charles J. Phelan has been helping consumers become debt-free without bankruptcy since 1997. A former sr. executive with one of the nation's largest debt settlement firms, he is the author of the Debt Elimination Success Seminar™, a five-hour audio-CD course that teaches consumers how to choose between debt program options based on their financial situation. The course focuses on instruction in do-it-yourself debt negotiation. Visit www.zipdebt.com
Debt News
Ecuador says plan to renegotiate debt imminent - PR Inside QUITO, Ecuador (AP) - Finance Minister Maria Elsa Viteri says Ecuador will announce its plan to renegotiate nearly 40 percent of its $10 billion in foreign debt before the end of next week. Ecuador partly defaulted on its foreign debt in December ...
Taylor Wimpey agrees debt terms - Financial Times Taylor Wimpey has informally agreed key terms with its banks and other senior creditors for a restructuring of its finances, allowing it to move forward with negotiations with its bondholders. The housebuilder and its leading senior lenders have ...
Provisioning criteria for debt securities held by CIS prescribed - Daily Times ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has prescribed valuation methodology and provisioning criteria for debt securities held by Collective Investment Schemes (CIS). With effect from January 10, 2009, the value of debt ...
Investor who quit Texas board had gambling debt - KLTV HOUSTON (AP) - The head of a board that overseas retirement investments for Texas teachers quit today -- shortly before a newspaper reported on his gambling debt. The Austin bureau of Hearst Newspapers reports Teacher Retirement System Board chairman ...
Chairman who quit board had gambling debt - El Paso Times HOUSTON—The chairman of a board that overseas investments for the state teacher retirement fund resigned Friday, shortly before a newspaper reported he had a $110,000 judgment against him for an unpaid gambling debt at a Las Vegas casino. Court ...
Gross Wins ‘Game of Chicken’ Shunning GMAC Debt Swap (Update1) - Bloomberg Jan. 9 (Bloomberg) -- Bill Gross’s decision to back out of a $38 billion bond swap for GMAC LLC debt is paying off for his Pacific Investment Management Co. investors now that the U.S. government has bailed out the auto and mortgage lender. Pimco ...
Petrobras to Pay Most in Bond Market Since ‘03 on Oil (Update4) - Bloomberg Jan. 9 (Bloomberg) -- Petroleo Brasileiro SA , owner of the Americas’ biggest oil discovery in three decades, will pay the most in the bond market in five years to finance a record investment plan after crude prices tumbled. The state-controlled ...
Verizon Wireless completes $5.9B Alltel buyout - Yahoo Finance Verizon Wireless closes on $5.9 billion Alltel purchase, will divest markets in 24 states LITTLE ROCK, Ark. (AP) -- Verizon Wireless on Friday completed its $5.9 billion purchase of Little Rock, Ark.-based Alltel Corp., making Verizon the nation's ...
Emerging Markets-Bonds up with Treasuries, stocks down with data - Reuters NEW YORK, Jan 9 (Reuters) - Emerging market assets traded mixed on Friday after a dismal U.S. jobs report sent U.S. Treasuries higher, lifting sovereign bonds. Latin American stock markets, however, dropped along with U.S. equities after the U.S ...
