Debt-to-income ratio worries couple who needs a larger home |

Debt-to-income ratio worries couple who needs a larger home

Real Estate Matters.BY ILYCE GLINKTRIBUNE MEDIA SERVICESQuestion: My husband and I are considering moving up to a larger home. We have three small, rapidly growing children. We knew when we bought our current house that we’d outgrow it but we didn’t think it would happen so quickly!We have the income to make higher monthly mortgage payments but aren’t sure if we’ll qualify for a mortgage due to a high debt-to-income ratio from a combination of credit cards, auto and educational loans.The home we’re considering is twice the price of the one we currently live in, but the interest rate on our current home is higher than current rates. My husband’s income has doubled since we bought this house three years ago.One thing that concerns me about our qualifying for a new loan is a new auto lease. My husband’s firm decided to provide each partner with a company car leased to the firm. It’s actually a great deal for us because it takes away his car payment, insurance and maintenance spending, providing us with several hundred additional dollars each month.However, even though the firm will cover all costs associated with the new car, my husband had to co-sign the lease. This is a luxury vehicle, something we would not have considered if it wasn’t being provided, and I’m concerned that the large leasing fee will affect our ability to get a new home loan.Do you have any insights on how we should handle our upcoming move?Answer: It’s hard to look out over the next five to 10 years to predict what will happen to you and what kind of housing you’ll need. Sometimes we guess right, sometimes not. But when it comes to families and the stuff we all accumulate, we often outgrow homes years before we think we will.It sounds like that’s what’s happened to you and it’s time to trade up to a bigger home. Let’s take a look at some of the issues you raised in your letter:First, I’m confused about why your husband’s firm asked him to co-sign for the car lease. To a mortgage lender, it will appear that your husband is responsible for the payments on the car, when in fact he’s not. The lender may require additional information from your husband’s employer and adjust the debt ratio to compensate for the fact that the employer makes the car payments.You have what’s known in the mortgage industry as hidden income. Often, self-employed people, or those who own their own firms, have additional business expenses that reduce their income. But savvy mortgage lenders will take the time to go through the Schedule C, look at a profit and loss for the business, and talk with the prospective borrower about what cash is really available to make a mortgage payment.You need to work with a highly-qualified mortgage lender who will understand your specific issue and work with you on it. Your debt-to-income ratio may not be as big a problem as you think, since there are creative financing techniques that allow lenders to work around this issue, if it’s even a problem.With today’s low interest rates, and your husband’s income being double what it was, you may be better qualified for your next purchase than you think.As you work with your loan officer, what you may want to do is figure out a way to pay down or pay off some of your credit card debt, and even the school loans. If your husband’s income has doubled, you need to figure out a way to stop charging more than you earn, and pay down the higher interest-rate debt you accumulated during leaner years.If your school loans are at a lower interest rate than your new mortgage, you might want to keep them, since some of that interest is deductible. Otherwise, you would be wise to figure out a way to roll the debt into the new mortgage, then focus on paying off this deductible debt as quickly as possible.

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