As a functioning adult, you know there’s something about debt that you’re supposed to understand at this point in your life, right? Something about not having too much, or maybe not too much in relation to something else… but frankly, this stuff is kind of confusing and some days you’d just rather take your Visa, buy a pizza, have a massage and then take a nap.

Today, though, you’re on a quest. You’ve decided it’s time to stop renting and become a homeowner. You came here to get some really good information on how to do just that… so, let’s put the credit card away and talk about your debt to income ratio and why it matters to your future mortgage.

What is My Debt to Income Ratio?

If you’re not familiar with the term, don’t be shy, it’s one of the most common questions that first time homebuyers have when applying for a mortgage. That’s because there aren’t a lot of places where it’s obvious that your debt to income ratio is being used to determine your ability to get credit. It’s sort of figured out behind the scenes and you’re none the wiser.

At a very basic level, your debt to income ratio is simply what it sounds like, all your long term, semi-permanent debt compared to your current income. Usually your mortgage lender will do this as a monthly comparison to make it easy, but the ratio’s the same whether you compare month to month or year to year. If you have $1,200 a month in debt and $5,000 a month in income, that’s the same as if you had $14,400 in yearly debt and $60,000 in yearly income. Both come out to 24 percent, which is a pretty good debt to income ratio.

But, of course, it can’t be that easy, can it.

What’s Included in a Debt to Income Ratio?

Things that are included in your debt to income ratio are secured loans like a car loan or a boat loan, which are sort of guaranteed by the property that you’ve borrowed the money to purchase; unsecured loans like credit cards and lines of credit; student loans and any debt you’ve co-signed.

Let me repeat that last thing. Any debt you’ve cosigned is part of this figure. So, if you agreed to cosign a loan for your sister 20 years ago and she’s still paying on it, that’s still going to count against you, even though you’ve totally forgotten about it. If you’re on a joint account with your ex-husband, you’re still on the hook when it comes to debt to income.

Things that aren’t included, that are almost always assumed to be, are items like your car insurance, your utility bills, your cable bills, subscriptions and so forth. Basically, if you can cancel the payment at will (whether or not there are serious consequences like having no lights or being able to watch Game of Thrones), it’s probably not going to be included on your credit report unless you fail to pay as agreed. While you’re at it, it might be a good idea to go ahead and get yourself a credit report from a reputable site like MyFICO.com, the Fair Isaac website, just so you can see what is actually reporting.

Adding It All Up

Figuring your debt to income ratio is pretty easy, the hardest part is figuring out what counts and what doesn’t. Just add up your monthly expenses and divide by your monthly gross income, before any taxes, insurance, 401k withdrawal and the like come out. There you go. That’s your debt to income ratio. Now we can do some stuff with it!

There are three major programs that most home buyers utilize across most of the United States. These are the FHA, VA and Conventional mortgages. Each has its own requirements and debt to income ratio ceilings. Some are more complicated than others.

FHA and Front End and Back End Ratios

For FHA, there are two kinds of debt to income ratios to keep in mind. One is called the front-end ratio, the other is, unoriginally, named the back-end ratio. The front-end ratio is only your potential future housing debt; the back-end ratio includes all your debts. With that in mind, the chart below shows how you’d look to an FHA lender as of the writing of this blog.

The first number in the column labeled “Maximum Qualifying Ratios (%)” is the front-end ratio, the second is the back-end ratio. Compensating factors can be thought of as other things you bring to the table to make you into a really awesome borrower. Since you have little to no experience at this mortgage thing, your FHA lender is understandably afraid of your eventually missing a payment in the 30 years you’re going to have a relationship, so they want evidence to show that you’re a stand-up kind of person.

FHA loan debt-to-income guidelines. Source: HUD Handbook 4000.1

Fannie Mae and DTI

Conventional loans are a bit easier. Fannie Mae is the principal agency that guarantees what’s known as a “conventional” or “conforming” loan. Fannie has siblings like Freddie Mac and Ginnie Mae, but they’re at the movies right now and we’re not going to involve them in the conversation. For our purposes, conventional loans are all about Fannie Mae.

In general, conventional loans tend to be more difficult to land, in part because they have more rigid income to debt requirements. For borrowers with credit scores of 680 or better and less than a 25 percent down payment, Fannie won’t allow more than a 36 percent debt to income ratio (but she only uses the one number, so at least it’s not more complicated than that). If your credit score is above 700 and your down payment is less than 25 of the home’s price, she’ll allow a 45 percent debt to income ratio.

When it comes to Fannie, bringing more money to the table will absolutely catch her eye. She believes firmly that all things that glitter are definitely gold. That magic number is 25 percent of the sales price of your home. So, if you’re floating in cash, but have a higher debt to income ratio or a little bit lower credit score, you could win brownie points this way.

Veterans Get More Leeway

If you’re a military vet and you’ve not used your VA mortgage benefits, you may be wondering about cashing in that particular chip. When it comes to the debt to income question, it’s a harder one to answer. Generally speaking, the VA wants to see a debt to income ratio below 41 percent, but like with other qualifiers under VA, the rules aren’t really all that hard and fast.

VA loans tend to be a lot more flexible in general, and debt to income ratios are no exception. Although all the loans mentioned in this blog can be manually underwritten, the guidelines only allow for so much deviation outside the rules. VAs give a lot more wiggle room, so if you’re at a 45 percent debt to income ratio, for example, it might not be out of the question if everything else is in line.

Time to Go Apply What You’ve Learned

Figuring out your debt to income ratio is just one of the very first steps you should take on your path to getting a mortgage. Once you can see how much each of your debts affects your ability to get a home loan, you can either refinance those debts into loans with better terms or work extra hard to pay them down before approaching a mortgage lender.

When you’re ready, or if you have any questions about your debt to income ratio, it’s easy to get a quick answer from our team.  We are always standing by to help in any way possible!  

It’s not unusual to downsize to a smaller home at one point or another; a smaller home is something that many people look forward to and take advantage of as they get older.

You may be wondering if it’s time for you to start downsizing and start a new chapter in a smaller space. Whether you’re an empty nester looking for fewer maintenance requirements or simply interested in a smaller space, there is one thing that is inevitable: You will have to get rid of some of your stuff. This is somewhat bittersweet, but you get a chance to go through all of your belongings and determine what truly needs to make the trip to your new destination in life. Follow these tips to make the downsizing process significantly easier.

List it or Leave it

The first step to downsizing is to make a list of the things you absolutely need. Items that don’t make the cut shouldn’t come to your new house. It’s important to do this at least three months prior to the move to ensure you have an ample amount of time to go through your items and think about whether or not you need them.

Sort and Sell

Once you have determined the items not coming to your new house, you can start getting rid of them. This can be a difficult task, as your items will have different values and varying degrees of wear and tear. Grab three boxes and label them for selling, donating, or throwing out. As you sort through your belongings, you can quickly assign them to the correct box and get rid of them accordingly.

Compare New Rooms with Current Rooms that Have Similar Dimensions

It can be hard to determine how much room you will actually have when downsizing. Get the dimensions of each room in your new house, and compare it to rooms in your current house that have similar dimensions. This gives you the opportunity to see what kind of space you’re working with, and more importantly, what furniture will fit in your new downsized home. When trying to determine what furniture pieces will make the move, look at your new floor plan: determine if it’s plausible to keep those all sofas, or chairs, or if you should part from your old furniture all together and upgrade with newer pieces.

Downsize Your Kitchenware

If you’re an empty nester, there is truly no need for ten mixing bowls and seven spatulas when you move into your new house. Narrow down your bowls, plates, forks, and spoons to reasonable amounts, and use paper kitchenware when hosting in the future.

Target the Garage

Depending on the kind of home you’re downsizing to, you may not need a lot of the items in the garage. If your new condo handles lawn maintenance and snow removal, you can get rid of the shovels, your lawn mower, and possibly even the ladder. Determine what tasks will be taken over by someone else when you make the move, and sell any equipment you will no longer need.

Downsizing your home can be an emotional task. It can also be just as exhilarating. Fol+low these tips to de-clutter and reorganize your belongings as you head into a new chapter in your life.

Congratulations! You’ve just purchased your first home.

There’s no denying that this is a very exciting time in your life. Becoming a homeowner will bring many new opportunities your way, the first one being a chance to go shopping! As a first-time homebuyer, there are some things you need for your home that you may not have needed previously.  So grab a piece of paper and pen because it’s time to create the ultimate first-home shopping list.

1. Lawn Equipment

One amazing thing about owning a home is that you own the lawn, the grass, the flower beds, and everything else comes with the property. However, this also means you have to take care of what you own, and unless you’re hiring a landscaping company, you will need to purchase some lawn equipment. Here are a few useful tools to help with lawn maintenance and get you started in your outdoor maintenance:

• Lawn mower
• Weed whacker
• Weed puller
• Water hose and sprinkler
• Ladder

2. Household Tools

Even if your home is newly built, maintenance will be required. Whether it’s a leaky faucet, squeaky hinges, or more elaborate home repairs that crop up, you’ll need some tools of your own. The upfront cost of purchasing tools can be significant, but they can save you an abundance of money in future home repairs. After all, if you let problems persist, they will only get worse—and much more expensive. In addition, you may wish to do some simple home renovations yourself, such as hanging a TV on the wall or changing out the house’s original hardware. As a rule of thumb, grab these tools to ensure regular maintenance and quick home repairs:

• Screwdriver set
• Hammer
• Level
• Pliers set
• Tape measure

3. Gardening Gear

Gardening gear is different than lawn equipment; while you have to maintain your lawn, you aren’t required to plant beautiful, vibrant flowers to enhance the landscaping of your home. However, planting some fresh flowers and/or a vegetable garden can bring an abundance of enjoyment to your experience as a first-time homebuyer. It will also enhance the exterior appearance of your home, and may even provide you with a new hobby to enjoy for years to come. Some items to get you started on the path to creating a captivating landscape include:

• New plants, such as fruits, vegetables, flowers, bushes, etc.
• Soil, fertilizer, and mulch
• Gardening gloves
• Gardening tools, such as cultivator, trowel, and fork
• Shovel

4. Outdoor Patio Furniture

As a new homeowner, you may not have had the benefit of an outdoor living space previously. However, now that you have purchased your first home, if you do have this benefit, you can style your backyard to your liking. Whether you have a condo balcony, small yard, or acres to enjoy, you’ll need some outdoor patio furniture. Create the ultimate outdoor living space with the following items:

• Patio chairs and table
• Outdoor lights
• Barbecue
• Outdoor plates, bowls, and cutlery

Buying a home is a huge investment. It’s the first major purchase you make towards building a better future. Preparing yourself with a list of must-have purchases you need as a first-time homebuyer will help decrease the stress of the move and responsibility, and bring much enjoyment in the long run.

The process of selling your home can be a tough one. You’ve spent a significant amount of time staging it and even scrubbed every room top to bottom. It’s in immaculate shape, but what may surprise you is that your behavior also plays a vital role in the way potential buyers feel. Here are the 5 etiquette rules every seller should know to ensure that her or his home is showcased in the best possible light.

1. Leave your home during showings

When there is a showing, it is important to leave your home and let your real estate agent do their job. Although you’re dying to see the reaction potential buyers have to your home, remaining there will make them feel uncomfortable. Removing yourself during a showing also allows the buyers to more easily visualize living there themselves, which is a huge selling point.

2. Take your pets with you

There is nothing more distracting than a barking dog or playful kitten running around your home during a showing. In addition, potential buyers could be allergic, and animals in the home may deter them from buying. Provide your buyers with a comfortable, stress-free experience when viewing your home by removing your pets. From caged to uncaged companions, take them with you to ensure that you don’t alienate potential buyers.

3. Provide parking

Keep your home warm and inviting by providing buyers with quick and convenient parking options, if possible. It’s important to move your vehicles in order to make it easy for visitors to park and view your home. There is nothing more frustrating than parking issues, and if someone has to park far away just to view your home, they may skip the event altogether.

4. Provide important documents

Many potential homebuyers will have questions about your home. Since you won’t be there to answer them (if you follow the first rule of seller etiquette), you still want to be able to answer all questions quickly and effectively. This can increase the chances of receiving an offer, and make the potential buyers’ experience more enjoyable. Leave all necessary documents, such as the inspection report, home warranty, monthly bill information, proof of repairs, appraisal, and such, with your agent. These are all things potential buyers may want to see. Most states offer a Seller’s Disclosure that is provided to all interested parties before an offer is made. It is important to have that filled out as best as possible for all potential buyers as well.

5. Be patient

You may have countless showings before your home is sold. It is important to be patient with every buyer who walks through the door. You’re eager to know how the showings went and what the prospects thought of your home, but it can take some time for buyers to process what they’ve seen before making an offer.

By keeping these etiquette rules in mind, you ensure your home is showed at its best to potential buyers and real estate agents.