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I'd like to know what items a bank will look at for their debt to income ratio calculation for an application. My only loan right now is a car lease. So I'm specifically wondering if any of these items (or others I'm missing) are used to calculate your debt to income ratio:

  1. Property taxes
  2. Home insurance
  3. Health insurance
  4. Car insurance

Thanks

  • Child support and alimony will count. Are 1 and 2 for a second home? Not 3 or 4. – Pete B. May 23 '16 at 15:00
  • No, for the first home that we are looking to get the mortgage for (wish we could afford a second home..) – user1219278 May 23 '16 at 15:18
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There are actually two separate ratios to consider:

  1. Housing to income ratio:

[Y]our future monthly housing expense, including principal, interest, taxes, insurance, and any housing association or condominium fees

  1. Debt to income ratio

Total your monthly debt: Include minimum credit card payments, auto and student loans, consumer loans, and other financial obligations including child support and alimony. Do not include your current housing payment, unless you own your home and will keep that property.

Add in your estimated future housing expense, including principal, interest, taxes, insurance, and any housing association or condominium fees

(Quotations from Wells Fargo "How to Calculate Your Ratios" page)

The housing to income ratio should be under 28% or so. Debt to income ratio includes housing plus your other debts, and should really be under 36% or so; 43% is getting into the higher interest rate products that can be expensive.

"Insurance" above means home insurances - including flood or other insurances taken out for your home - but not health or car insurance.

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I think this link explains it best.

In your situation an estimate of property tax and home owners insurance would count as part of the mortgage. Typically this is done as escrow through the mortgage company so it is considered part of the mortgage payment. Keep in mind some real estate sites show an estimated mortgage with taxes and insurance estimates included. Be careful not to add those amounts twice.

If you have the discipline to save money and budget I would highly recommend doing your own escrow. Escrow companies almost always collect the wrong amount.

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  • If they allow you to (do your own escrow). Many don't allow that as they make money on the prepaid taxes. – Aganju May 23 '16 at 20:21
  • @aganju: Sometimes this depends on how large your down payment is. Putting them at less risk encourages them to trust you more. – keshlam May 24 '16 at 5:23

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