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:
Thanks
There are actually two separate ratios to consider:
[Y]our future monthly housing expense, including principal, interest, taxes, insurance, and any housing association or condominium fees
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.
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.
