What counts as "debt" when calculating what house I can afford?

[Anonymous]

In calculators like this one, http://cgi.money.cnn.com/tools/houseafford/houseafford.html, it asks for monthly debt. We don't have car or student loans and we pay off our credit cards every month. But we do have daycare and other HH expenses. Does that count as debt?

[Anonymous]

No, those aren't debts - they're monthly expenses. Debt is when you have a balance of money that you owe someone - a house loan, a car note, student loans, etc.

[Anonymous]

Pretty much anything you can pay off in full at the end of the month does not count as debt (and I have had lenders ask me to do that before closing).

[Anonymous]

credit card minimum payments count towards your debt. So even if you pay off your balance every month, you will have a minimum payment which will count towards your DTI

[Anonymous]

23:03, I don't mean to be dense, but sounds like you're saying something different from other PP's? We do pay a lot of our HH expenses by credit card but pay it off every month. Minimum payment per card is usually like $30 or something. Are you saying, then, that the 30 dollars is debt?
Also, DTI is debt-income ratio, right? Should that be of our gross income or our adjusted gross income?

[Anonymous]

Yes the 30 is used in your debt to income ratio. And gross income used for the ratio also.

[Anonymous]

Ok great. Thank you!

[Anonymous]

How much of a down payment have you saved? When calculating the amount of house you can afford, work backwards. How much are you comfortable with paying each month? That amount should cover your loan, the tax and insurance load and increased anticipated utilities. You can ask sellers for a years worth of utilities to get an idea of those. The County should have a data base to look up the current tax load on the house. Call your current insurance agent to get a ballpark on the insurance costs.

Then subtract the taxes, utilities and insurance costs from your comfortable monthly payment estimate. That is how much you can afford to pay on a loan. Use one of the loan calculators to see how much that would be and add it to your down payment. That is how much house you can afford.

[Anonymous]

Thanks, PP. Part of the issue is that my spouse and I have different comfort levels on affordability. I lean more toward the 25-percent threshold, while he feels quite okay going above 30 percent.
So if the calculator tells me I can afford X because my debt isn't so much, it doesn't take into consideration that I still have daycare expenses for a few more years. I just want to understand as much as possible.

[Anonymous]

Anonymous wrote:Thanks, PP. Part of the issue is that my spouse and I have different comfort levels on affordability. I lean more toward the 25-percent threshold, while he feels quite okay going above 30 percent.
So if the calculator tells me I can afford X because my debt isn't so much, it doesn't take into consideration that I still have daycare expenses for a few more years. I just want to understand as much as possible.

You mean 25% of your monthly income to mortgage and associated costs or as a down payment? The general measure for most living situations is housing should be no more than 30% of your monthly take home.

[Anonymous]

Anonymous wrote:credit card minimum payments count towards your debt. So even if you pay off your balance every month, you will have a minimum payment which will count towards your DTI

Not if you pay off the balance before closing. Then your balance and min payment will be 0 (or at least lower, if you don't spend much in the days before closing). Might not be worth the extra effort for an extra $30 or so though.

[Anonymous]

Anonymous wrote:credit card minimum payments count towards your debt. So even if you pay off your balance every month, you will have a minimum payment which will count towards your DTI

Not really. When you actually get to financing, it'll show how much your CC balance was at the tiem they ran the report, but it doesnt' really make much of a difference.

Last refi I did, I think I had $15k on my credit card that month (I always pay it off.. and had a bunch of business expenses that month) and it was no issue.

[Anonymous]

Anonymous wrote:

Anonymous wrote:credit card minimum payments count towards your debt. So even if you pay off your balance every month, you will have a minimum payment which will count towards your DTI

Not if you pay off the balance before closing. Then your balance and min payment will be 0 (or at least lower, if you don't spend much in the days before closing). Might not be worth the extra effort for an extra $30 or so though.

Actually, it would depend on what your credit report says. You cannot pay off a balance on a revolving debt to qualify - you would have to close the account. Your credit report doesn't always have the current balance, so if you use the card at all in the month or two leading up to when the lender pulls the report, it could reflect a balance, and the minimum payment would count against you for your debt to income ratio.

[Anonymous]

I have a TSP loan (fed version of 401k). The repayment is deducted from my check biweekly. Does this count? I've heard conflicting information on this, just curious if anyone knows for sure.

[Anonymous]

PP, does it show up on a credit report?