Relief Refinance Mortgage Plan Debt To Income Requirements
Many people know that the first parameter a lender will check when they go through your mortgage qualification request is the Debt to Income ratio. This DTI (Debt to Income) ratio parameter requirement is one of the most important figures for processing the mortgage as the debt to income ratio has impact on the amount they will lend, the interest rate and the life term of the new mortgage.
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Home Affordable Refinance Program (HARP) was made to support homeowners to refinance their mortgage to better rates. Here are a few guidelines to help you swim through the refinancing debt to income issues.
Debt to Income Ratio Logic
The logic behind the debt to income ratio is to have some kind of ‘rule of thumb’ on how much from a persons income should the mortgage loan payments be. This ratio is quite easy to calculate, and helps the lender and the borrower know how much money per month the borrower can handle.
Each lender can have a different DTI figure on which they can decide how much money to lend, and how long to stretch the mortgage term. There are two kinds of debt to income figures, ‘front end’ and ‘back end’ DTI, they are calculated similarly but usually the Back-End Debt to Income is the figure the lenders look at.
Calculating the Debt To Income Ratio
In order to get a figure of Debt To Income, a person needs to add all the fixed mortgage expenses which are expected to be paid monthly, including private mortgage insurance, homeowner’s insurance and property taxes. Then divide this sum by the income (before taxes). This is the Front End Debt To Ratio, usually the small figure and some lenders will want to see it is lower than 30%.
The more relevant ratio figure is the Back End Debt To Income, this figure is calculated the same but on top of the mortgage expenses you need to add the all the monthly fixed payments you have, including car loan payments, student loan payments, revolving credit payments etc.. this is then divided by the gross income.
Back End Debt to Income has a higher percentage figure, as paying back debts of all kinds is a larger slice of the family income than the mortgage expenses alone. This is the real figure that needs to be related to when refinancing.
You may see both figures placed together like this: 29/40 This means Front End DTI = 29, Back End DTI = 40. In this example the lenders DTI limit requirements are that the mortgage expenses will not exceed 29%, and the over all family debt will not be higher than 40% from the gross income.
Relief Refinance Mortgage
As a part of the federal Home Affordable Refinance Program (HARP), Freddie Mac launched the Relief Refinance Mortgage program. This program allows people to refinance their mortgages with slight ease on some of the requirements, all intended to help people refinancing their mortgages after he 2009 economic crash down.
One of the factors that the Freddie Mac indicated they will give some relief is the Debt to Income ratio requirements. For the lenders the most safe course of action is to lower the ratio limit, and by that to make sure the borrower has enough free cash to pay back the loans. Freddie Mac new Relief Refinance Mortgage plan, allows a raise in the Maximum Debt to Income ratio, and making refinancing possible for more families and consumers.
Relief Refinance Mortgage – Same Servicer
Same Servicer – The Freddie Mac indicates that when the refinance request is processed by the same current mortgage lender (same servicer) the Relief Refinance Mortgage – Same Servicer does not have a maximum debt-to-income ratio requirement.
There is an exception if there is an increase in the monthly payments that exceed 20% in the new refinanced mortgage compared to the old mortgage, than the debt to income maximum limit (back-end) is set to 45%.
Relief Refinance Mortgage – Open Access
Open Access means the refinancing is processed by a new lender, and not the same one for the first mortgage. In this case by the Relief Refinance Mortgage guidelines each lender does it’s own assessment and can determine their own Debt To Income Limit requirement.
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