DTI Calculation (Optimizing Monthly Personal Spend)

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DTI Calculation (Optimizing Monthly Personal Spend)

Jeremy M.
Member since 2019 · 1 post · 0 votes

First post here :)

Quick question on how DTI is calculated for a salaried employee (paid every two weeks) who also receives bonuses/commissions.

I know that every lender will be different, but as I understand it one needs to take income components:

1. Last two gross pay amounts (ie, over 4 weeks); and
2. 2-year average of monthly gross commissions/bonuses

And then calculate the level of debt being serviced every month.  I follow obvious inclusions like an auto loan, student loans etc, but what I'm not clear on is whether you'd include the full balance of one's personal credit card that is consistently paid off every month with no interest incurred.

If the monthly balance is included regardless, one could presumably optimize this by switching to paying items on a visa debit card or the like (since this would effectively cut the monthly credit card bill down to $0). If this is the case, how much time would you need to follow this model for it to influence the DTI calculation?

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  • Kevin Romines
    Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    Good questions here Jeremy. Let me help break this down for you.

    On the W2 wages. If you are paid hourly we will take the dollar per hour X the average # of hours YTD per week. This may be more or less than 40 hours per week, it depends how that breaks down? If you are salary, we will just take that number for what it is on a monthly or bi-weekly basis. 

    On the commissions or bonuses, we will require an verification of employment that should separate out your base wages from your commissions and also separate bonuses over the last 24 months. We will then average the commissions for the last 24 months, and also average the bonuses for the last 24 month. However, if their has been a decline by 20% or more in those commissions and bonuses in the last 12 months, you will only get the lower average of 12 months. Whichever is less?

    As far as the credit card, if a lender doesn't have any overlays, then they wont count any monthly payment against a card that has a zero balance when the credit report is pulled. They will also do a credit refresh right before closing, so you need to have a zero balance at that time as well, otherwise a payment can be calculated into the DTI. For lenders that have overlays on a Fannie Mae / Freddie Mac or government type loan, they may hit you with a payment on the card as if it was maxed out. So ask your loan officer if they company has any overlays on those types of loans, it can make a difference?

    I hope all this makes sense?

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