CHAPTER 11: RATIO ANALYSIS - PITI & TD Standards For Borrower Repayment Ability.pdf

This section outlines the ratio calculations used to assess applicants' repayment ability for homeownership. The Agency sets standards for Principal, Interest, Taxes, and Insurance (PITI) and Total Debt (TD) ratios, allowing flexibility with valid compensating factors.

11.2 The Ratios:

- PITI Ratio: Applicants are considered viable if their proposed monthly housing expense (including first mortgage, taxes, insurance, etc.) doesn't exceed 34% of their repayment income.

- Total Debt Ratio: Applicants are deemed capable of repayment if their total debts don't surpass 41% of their repayment income.

Debt Calculation: Lenders must document all applicant debts (credit/debt obligations) using various records, including credit reports, verifications, court documents, and bank statements. All open accounts incurred before closing must be considered in the total debt calculation.

Inclusion of Debt Types:

- PITI: First mortgage (P&I), property taxes, insurance, mortgage insurance, association dues, etc.
- Installment Accounts: Auto, personal, secured/unsecured debts with remaining payments of 10 months or fewer. Payments under 5% of monthly income may be omitted.
- Revolving Accounts: Credit cards, lines of credit with minimum monthly payments documented. If no balance, no payment needed.
- Open 30-Day Accounts: Credit arrangements requiring full monthly payoff. Utilize credit report to confirm the previous 12 months' on-time payments. Late payments in the last 12 months require including 5% of outstanding balance.
- Court Ordered Debts: Child support, alimony, garnishments included unless applicant has a release of liability. Lenders must confirm current repayment agreements.
- Child Care Expenses: Not required to be included in monthly debt ratio.
- Student Loans: Use payment amount from credit report or actual documented payment (if above zero). Co-signed obligations are addressed separately.
- Rental Property Mortgages: Net monthly rental income may be counted for repayment after 24 months of consistent receipt. Late payments on rental properties in the last 12 months must be included in debts.
- No Release of Liability Mortgages: Disposed mortgage liabilities must be included unless evidence confirms current payment by new owner for the previous 12 months.