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The debt-to-income ratio includes monthly payments such as your mortgage, car payments, student loan repayments, and child support.

However, it doesn't include payments such as auto insurance. I understand auto insurance isn't exactly defined as a "debt" (although home owners insurance is included within DTI). But this is in essence, nondiscretionary income... why don't lenders look at this?

Is it because it varies too much? Or is it because it doesn't affect the riskiness of the borrower (at the end of the day, these loans become assets to the lender, whether they retain/sell servicing or retain/sell the loans in the secondary market).

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    Car insurance isn't the anomaly, home insurance is, why is it included when other expenses like food/clothing/maintenance/repairs aren't? – Hart CO Sep 21 '18 at 20:26
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If you have a mortgage, you must insure the house, as the mortgage-giver wants the risk of loss insured. So having this insurance is not negotiable.

On the other hand, if you run out of money, you could sell your car and drop the insurance, to be able to pay the mortgage. You might consider this unbearable, but many people would consider it (some even drop only the insurance...), and many people don't even have a car (NYC, for example). In other words, the mortgage company doesn't care much if you can afford a car.

Moreover, the limits for DTI are set to include enough wiggle room in the remainder to pay this. If you include car insurance, the allowed percentage/ratio would just be a bit higher (and treat people without cars incorrectly!)

  • If you run out of money, you could sell your car and drop the insurance, as you stated. But they still include the car payment in the DTI ratio, so why wouldn't they include insurance? However, you made a good point. Although insurance and car payments go hand in hand... you could, if the struggles warranted, drop the insurance but keep the car. – MarioS Sep 21 '18 at 18:31
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    I don't know much about car financing, but around here it seems to be standard that the lender gets an interest in the car as collateral, and therefore requires comprehensive insurance. – Henning Makholm Sep 21 '18 at 20:09
  • @MarioS: But by the same logic, car payments are discretionary, too. I haven't had a car payment since some time in the '80s, despite having owned quite a number of cars since. – jamesqf Sep 22 '18 at 3:52

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