Cash is King – Upside Down Mortgage Solutions

November 4, 2008

Hope for Homeowners: Calculating your Debt-To-Income Ratios to Qualify

Useful Information:

Upside Down Mortgage Help Get started Here!

Listen in on a Interview I did on Loan Modifications and the Fannie Mae and Freddie Mac Streamline Loan Modification Program

Need Help with Hope for Homeowners FHA refinance program?- Start with a foundation in Upside Down Mortgage Solutions HERE!

In an effort to help those in need who want to calculate their income and ratios on their own I thought I would use an email I just received and how we can learn from our mistakes!

Dear Brent:

I received your email concerning the “H4H” program and would like to use your team.  However, we currently do not qualify due to the “31%” mortgage debt to income ratio requirement.

Our current gross income is 131,050.16.

Our current mortgage payment is 2381.00 per month.  That does not include homeowner’s insurance or property tax.  Our property tax this year was $3740.84 and our insurance was $1281.00.  The total of these two amounts is $5021.84, which divided by 12 is $418.48.  We currently put aside 520.00 each month in a savings account in order to pay these “escrow amounts” ourselves.

When {company “W”} corporation first started servicing our loan, I tried to set up an escrow account with them, but encountered such difficulty with their customer service that I decided to pay the taxes and insurance myself.  Also, so far I have been unable to get them to divulge exactly who owns our loan.  They just keep offering to “modify” our loan, but when I ask who owns our loan so that I can avail myself of the “H4H” plan, they say that they don’t know, they just repeat that they only “service our loan”.  Isn’t it illegal to deny this information to me?

I used these calculations to determine our “front end mortgage debt to income ratio“–gross income $131.050.16  divided by 12= $10,920,84, multiplied by .31 =3,385.46.  So we spend 2799.48 on housing per month, but we are not spending 31% which would be $ 3,385.46.  If I calculate it using the $520.00 figure that I actually put away in savings for our escrow we spend $2901.00 for housing, which still falls short.

However, our loan is an “arm/balloon payment” loan that is due to start adjusting in December,2009.  We are trying to take proactive measures in order to avoid a situation where we cannot afford our payments.  We owe 380,949.69 on our loan, and the last time I looked (l ast month) our house value had gone down to app. 230,000.00.

So you see we are “upside down” and face major difficulties when the “arm” starts to adjust.  Is there any assistance you and your team can provide?  What do you suggest that we do?  We thought that we had a 30 year fixed rate when we got the loan because that’s what the loan officer for [company B] kept saying on the phone; when we signed the papers we stupidly did not read them well enough and now have this terrible “ARM” loan hanging over us.  Also, we should be able to get a better rate than 6.985% which is what the rate is right now.  Please write back and advise us.  We would love to use your team if there is any way you can help us out of this mess.  Also we need to know if mitigating our loan will impact our credit scores. Thank you very much!!!! L M

_______________________________

Hi L!

Thanks for the email!

I appreciate all the detail!  It makes my response more useful!

OK let’s take a look at your situation.

It is important to use the correct gross income.  If you are a W-2 employee then it is straight forward BUT if you are a 1099, receive bonuses or are a self-employed person there are additional calculations that need to be considered.  Your income will probably be the most important calculation we make because if we can prove you have less income using different tax records then we need to be doing so to help you qualify.

Next, using the right mortgage payment is important.  You are on the right track with your numbers above so it would come down to your income to determine if the underwriter would truly use all $131K of that income.

Being upside down isn’t the end of the world it is only a minor speed bump.  We need to handle the situation differently but that is easily done.

If the H4H program isn’t a good fit there are other choices for us out there!

When you get some time give me a ring and I will walk you through the process and the paperwork.

Be in touch.
Brent Lane

As you can see calculating the income and mortgage payments correctly are very important in qualifying for the Hope for Homeowners FHA refinance.  If your are slightly off on your numbers then you may head in the wrong direction.

If you need additional help figuring out your income or if you have a complicated situation then please feel free to contact me!

Learn more about Refinancing an Upside Down Mortgage– Get Your Free Report Here

Learn the Basics and Foundation to Coping with an Upside Down Mortgage

ROSEVILLE MORTGAGE REFINANCE

REFINANCE UPSIDE DOWN MORTGAGE

UPSIDE DOWN MORTGAGE SOLUTIONS

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19 Comments »

  1. […] CANNOT own a second home. 5.    Your debt-to-income ratio needs to EXCEED 31% (front end). See H4H Income Calculation 6.    You must qualify for this loan using full income documentation, which will vary person to […]

    Pingback by Upside Down Mortgage: “Hope for Homeowners” FHA Mortgage is the Solution « Cash is King — November 6, 2008 @ 8:56 pm | Reply

  2. Your math is wrong. He said his mortgage payment was $2381.00 plus $418.48 taxes/insurance, for a total of $2799.48.

    You took the $2799.48 as his mortgage payment, then double counted the $418.48 to get $3217.96.

    Comment by Random Reader — November 24, 2008 @ 10:51 pm | Reply

  3. Hi Brent,

    First let me say that this website was a breath of fresh air. This problem is keeping me up at night. But with your help, I might actually be able to get my first good night’s sleep in days.

    My situation is this: I live in the state of Delaware, am a single mom of one teenager, annual income of $49,000 (NO CHILD SUPPORT OR ADDITIONAL INCOME). I purchased my home in February 2007 right before the bubble burst. The purchase price was $209,900 at a fixed rate of 5.625%. My original monthly payment was $1518 but has now increased two times and is now almost $1600 (first adjustment was due to miscalculation of escrow by the grantor and second time by increased property taxes which I was notified about yesterday. As far as the value of the house, there are approximately 6-10 similar homes within a 3 block radius that are now listed for $170,000 or less. With the increase of other monthly obligations such car payment, groceries, etc I can no longer afford to comfortably pay the mortgage. Notice I said “comfortably”. I can afford the mortgage but not much else. There is no second mortgage and my payments are current. However, I’m pinching off my savings monthly in order to make it. I have to be concerned with saving money for my child’s education and would like to be able to have some money in the bank. At this point, I’m not even interested in saving the house. I hate the house, the block, the neighbors and their dogs and apparently the feeling is mutual because 2 weeks ago someone stole my car from right in front of the house. Unless the bank could consider cutting the payment by $600/month I’m prepared to bail. I know it would send my credit down the tubes but I just can’t justify putting myself in the poor house for a house I don’t even want.

    With all that being said, what is my best recourse at this point? My credit is very good but I have no intention of purchasing another home anytime soon IF ever. I called my mortgage company but they pretty much told me “too bad”…you know the rest. I’ve looked at the possibilities: short sale, deed-in-lieu, and just walk away. I don’t know if H4H would work for me or not. My total monthly income is about $2800 but with car note,insurance and what not I’m sure my DTI is well over 50%.

    Comment by Kimberly — December 2, 2008 @ 1:43 am | Reply

  4. Hi Everyone!

    It does look like I made an error in my math and have gone back to make the adjustments! Thank you for bringing that to my attention, I must have move a little too quickly putting that one together.

    Hi Kimberly!

    Please find my reply in your email!

    Brent
    http://www.thelanegroup.blogspot.com

    Comment by brentlane — December 2, 2008 @ 7:14 pm | Reply

  5. […] Your Debt-to-Income Ratio needs to be at 38% using current paystub (another obstacle). See Mortgage Debt-to-income Ratio Information […]

    Pingback by Loan Modification: Fannie and Freddie Streamline Modification Program « Cash is King — January 10, 2009 @ 5:14 pm | Reply

  6. […] Your Debt-to-Income Ratio needs to be at 38% using current pay stub (another obstacle).  See Mortgage Debt-to-income Ratio Information […]

    Pingback by Fannie and Freddie Fast Track Modification Program | Streamline Modifications | Truth in Foreclosure — January 12, 2009 @ 2:02 pm | Reply

  7. i am upsidedown, and struggling with monthly payments that exceed most our income, we called hope to home owners, and we did qualify, but we come to find out monthly payments are pretty much the same even with the principle reduction. due to high risk loans, which we have never been late on mortgage payments,, but they fixed us at a 7.5, so our montly payments are no lower with that, then they are now on our interst only. So basically not only do we share the equilty, but our payments remain the same as they were.. I thought this was suppose to relieve people of their monthly payments into a lower rate to keep them in their homes for relief??? but i guess i was wrong,, if h4h wants to work, then they should adjust payments to 5.5 and they still make plenty of money off that, plus they get shared equity. but unfortunately it wont help us

    Comment by GIGI — January 15, 2009 @ 3:21 am | Reply

  8. Hello,

    I’m trying to evaluate my debt/ratio by using the on line Debt/Ratio calculator – my mortgage payment (principle plus interest) is $690 per month. There is an additional $260 per month for escrow (homeowner’s insurance, sewage, property tax, school tax, and county tax). Both mortgage plus escrow combined equals $950. Which figure do I use – the $690 or $950?

    If I am to use the $950 (mortgage plus escrow), doesn’t that put me in an unfair position in comparison to those without an escrow account?

    Comment by Sharon — February 16, 2009 @ 4:41 am | Reply

    • You would use the $950! This would be everything the mortgage company would use to calculate your DTI!

      Hope that helps!

      Brent

      Comment by brentlane — February 16, 2009 @ 11:38 pm | Reply

  9. Thank you kindly Brent,

    I really appreciate your advice on this – however, my question regarding DTI Ratio is more in line with an Auto loan, not a Mortgage (Sorry – I Googled DTI RATIO and your web page popped up).

    In my particular case I’m thinking about trading in my car for a “newer” used model, keeping within the exact terms of the original loan (Same Loan Amount/# Yrs/Monthly payment). My DTI ratio is 42% when I include the escrow – if I don’t include the escrow it drops to 31% . My FICO score is 780 as of Sept. 08 and my credit report is very good – I just checked it last week. My worry is that the DTI ratio will keep me from getting a new car loan.

    I guess the question that I’m grabbling with is – Are lenders somewhat more “tolerate” of a high DTI ratio when it comes to auto loans vs. a mortgage? Any suggestions?

    Comment by Sharon — February 17, 2009 @ 1:38 am | Reply

  10. Need to refinance primary residence(FL) 30 yr fixed rate; LTV is w/o question at least 45%; Have a regular income of monthly gross pay $2942, plus $1604 child support. PITI, depending on loan amount would be either $1264, $1210, or $1157. Because of the child support, I am confused how that is calculated in, since it is both the gross and net income. Just looking at the debt ratio allowed for the residence, which, of any of these PITI’s could I afford? What is the overall debt ratio allowed? Doesn’t the PITI have to fit within a certain range (i.e. 20%), and then the total debt ratio not to exceed a certain amount? For a FNMA loan, what %’s are those?

    Comment by Diana Rodriguez — February 22, 2009 @ 6:58 pm | Reply

  11. […] If you have a back end ratio (see Brent Lane’s article on figuring financial ratios) of 55% or over, you’ll have to agree to enter HUD certified consumer debt […]

    Pingback by President Obama's Plan - What No One Is Telling You | Truth in Foreclosure — February 26, 2009 @ 12:30 pm | Reply

  12. I HAVE A 1ST & 2ND WITH HFC. I HAVE READ THAT THEY ARE NOT PARTICIPATING IN OBAMAS PLANS. MY HUSBAND LOST HIS JOB IN JULY 08 AND THE ONLY INCOME WE HAVE BEEN LIVING ON IS FROM OUR HOBBY/BUSINESS. WE ARE BREEDERS OUT OF OUR HOME. WE HAVE A 1ST AT 172,000.00 AND A 2ND AT 26,000.00. WE LIVE IN FLORIDA AND OUR HOME WAS WORTH 250,000.00 AT THE TIME OF OUR LOANS. NOW IT CAN’T BE WORTH MORE THAN 70,000.00. HFC HAS GRANTED US OUR 2ND 6 MONTH TEMPORARY HARDSHIP . THEY ADJUST THE INTEREST ON THE LOANS, WHICH CUTS OUR PAYMENTS BY ALMOST HALF, HOWEVER THAT IS THE ONLY PROGRAM THEY ARE WILLING TO DO. OUR SITUATION WILL PROBABLY NEVER CHANGE AS MY HUSBAND WAS A CASINO DEALER ALL HIS LIFE, WITHOUT OTHER SKILLS, AND AT 50, NO ONE IS WILLING TO HIRE HIM. I AM DISABLED BUT FALL SHORT OF THE SSID OF FULLY DISABLED SO I DON’T RECEIVE ANY ASSISTANCE, THUS THE BUSINESS THAT I HAVE BEEN MAINTAINING FOR 5 YEARS. WE WERE ABLE TO USE THE INCOME FROM THE BUSINESS TO QUALIFY FOR THE HARDSHIP BECAUSE WE DO CLAIM IT ON OUR TAXES. I NEED TO KNOW WHAT WE CAN DO FROM HERE. OUR CREDIT IS POOR NOW HOWEVER WE HAVE MANAGED TO MAINTAIN OUR TWO VEHICLE LOANS AND OUR TO MORTGAGE LOANS WITH THE GOOD STANDING WE HAD BEFORE AND THE COMPANIES HELP AND PATIENCES. WE ARE CURRENT RIGHT NOW BUT WITH UNPREDICITABLE INCOME IT IS HARD. WHAT STEPS CAN WE TAKE. I WOULD LIKE TO KNOW HOW OR IF WE CAN QUALIFY FOR A LOAN MODIFICATION/REFINANCING OF THE LOAN TO CURRENT VALUE. WHAT HELP IS OUT THERE FOR US SO THAT WE CAN KEEP OUR HOME WHICH INTURN KEEPS OUR BUSINESS. WE COULD NOT CONTINUE THE BUSINESS IF WE LOST THE HOME. PLEASE HELP

    Comment by KATHY — March 17, 2009 @ 1:16 pm | Reply

  13. I bought my home last year for 380K and put 20K down. I also have a rental because I cannot sale it but I could rent it out because we allow pets. We want to sale it but with the market we cannot get it sold but we always have renters willing. I have had 2 years of bad renters not paying rent so I have had to fork over moeny for my payments on that house because both were bought in the housing “boom”. Question is my house here in Northern Virginia is now worth $275K as of Jan 01 2009, last year it was worth $390K at the same time. I owe $360K on the mortgage. My payment is $2500 and when my renters were not paying (no evicted and I hope this new couple is good to go) I would pay another $1300. My wife and I make a combined $146K but she is a contractor and those are few and she has to keep herself at a low income because of competitiveness of the market. I work 2 jobs. I would like to lower my payment down but the programs seem to be focused on others but I would like some help too if that is possible. I paid points to bring my mortgage to a fixed 5.5% but with the way it looks I might not be able to even refi due to the 100K Depriciation in the Home. Is there help for me? I do not eat out at least the past few months because We pay 65% of our income for the house here and the the one there Since January. We are saving for the rainey day type fund and retirement because that is the right thing to do. We would just like to get a little help for doing the correct right thing by not going into forclosure.

    Comment by Scott — March 25, 2009 @ 1:08 pm | Reply

  14. Posting this article is big help for us homeowners. Thanks for posting.

    Comment by James Wetherbee — October 8, 2010 @ 6:03 am | Reply

  15. Mortgage rates is the solution I think.

    Comment by James Wetherbee — October 8, 2010 @ 6:13 am | Reply

  16. true… you know what they say…Don’t make investment or trading decisions based on tips. Tips are something you leave for good service

    Comment by Shyam — July 23, 2011 @ 3:38 pm | Reply

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    Comment by Credit Cards — April 26, 2013 @ 6:54 am | Reply

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