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Paying off debt to secure a mortgage

Securing financing for a mortgage in New Jersey that one can pay off comfortably is not the easiest of tasks. Consumers want to state their income in a way that makes it clear they make enough to buy a home, but not so much that they overstate how much they can pay and end up looking at bankruptcy options. Financial professionals say that the first step to knowing how to figure out a monthly mortgage payment that would work for a buyer is knowing what is involved.

The first factor is DTI, or the debt to income ratio. This stands for the total amount of debt one is paying off, including any mortgage payment, divided into the household’s monthly income. What mortgage lenders usually want to see is a ratio safely under 45 percent. The second is debt itself, which is defined in this context as the minimum total payments a household is responsible for making.

Finally, there is quantifiable income. This is also known as real income, and it is the net income available to spend on a house payment once present liabilities are considered. For example, if a household has $5,000 in monthly income, multiplying that by the above 45 percent DTI threshold leaves $2,250 as a family’s total debt allowance. Subtracting from that an assumed $250 total of all other monthly debt payments would leave quantifiable income of $2,000 per month.

Not every consumer can successfully navigate the financial vicissitudes of the current economy. An attorney with experience in bankruptcy law may be able to provide advice to a client who is having trouble dealing with financial obligations. Such an attorney may be able to determine whether bankruptcy is an appropriate option, and whether other forms of debt relief may be available.

Source: FOX Business, “The Right Way to Pay Off Debt to Get a Mortgage“, Scott Sheldon, September 17, 2013

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