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I know the simple answer to this question, "Because it is a monthly expense that I pay".
But once I get approved for a mortgage and hopefully own a house, I am no longer paying rent. So why should this affect what I can get approved for? I will still have the same gross income, and the same car loan payments, but the rent will disappear.....
I am hoping to be a first time home owner in the near future and I am trying to find the best route to make this happen. I pay $1500 in rent right now which kills my DTI. According to all the "calculators" I need to be under 36%, but I'm currently at 53% with rent. If I moved in with my parents and had no rent, my DTI would drop to 11%.
So do I need to move in with my parents to get approved for a loan? This doesn't seem right to me, in that I would still make the same amount of money and have the same payments on existing debt.
FYI. I realize that I may be approved for only a certain amount that will not exceed a certain DTI ratio
tl;dr
Why does $0 in rent, $100 in rent, or $2000 in rent make a difference when I'm not going to be paying it once I own a house?? Why should renting at a cheaper place now, affect what I get approved for in the future?
The current rent that you're paying should NOT be included when working up the numbers for your debt to income ratio, when figuring out your new debt to income with the mortgage.
As above, Rent does NOT count as "debt" as it's not something that you will continue to pay. Just like if you owe only a couple of months on a car, they don't count the payments against you because the payment will not continue.
They do look at your rent payment to see if there will be a shock payment involved. Some lenders do not loan you as much if your mortgage is going to be substantially higher than your current rent.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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That depends on the lease, if you have 8 months to go on it you have encumbered debt for that monthly amount and you would not qualify. If you have one month to go or are on month-to-month it should not count as debt.
That depends on the lease, if you have 8 months to go on it you have encumbered debt for that monthly amount and you would not qualify. If you have one month to go or are on month-to-month it should not count as debt.
That's a valid point. I assumed the OP was month to month since they said once they buy a house they will no longer have rent, but obviously I shouldn't have assumed that.
Of course, the situation isn't necessarily as straightforward as that. As an office that does both rentals and real estate, we often have tenants who come to us having decided they want to buy something. We let them out of their lease early to purchase a home. So even being in a lease term doesn't necessarily mean you can't get out of it to buy a home. If the rent was being counted because the buyer is in a lease term, the loan officer should have asked some questions about the lease.
The apartment complexes are catching on that mortgage lenders only require rental references if the loan program requires it.......which is close to never now. Some of the big guys, major rental complexes are now paying to rate each tenant. This is costing them big bucks, but they must be getting something back for it, because it's a growing practice. So, beware, if you are not in a month-to-month, quite possibly it's on your credit.
My boyfriend and I have renting for almost three years now at the same apartment complex , it is not month to month , its a year lease . We recently went to get pre approved and all that jazz and our rent was nowhere on our debts .
Your debt ratio will be calculated on the new mortgage payment, not the rent you are paying.
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