Hello, since most people here are pretty thrify, i thought it would be pretty interesting if everyone posted their DTI ratios. For those of you who dont know, its just total monthly debt service/gross monthly income.
Under 30% = excelent 30-36% = Good 36 - 40% = borderline 40% ++ =ouch!
Mine is 47% so obviously i am a letter over-leveraged!
Zan86 said: Hello, since most people here are pretty thrify, i thought it would be pretty interesting if everyone posted their DTI ratios. For those of you who dont know, its just total monthly debt service/gross monthly income.
What about the typical FWFer who is making money off banks, is the DTI negative then?
swraith
Frivolous Member
posted: Jul. 9, 2009 @ 10:35a
seems like you have to break this metric into two subcategories for those who own real estate and those who don't
2.24% of net. If you include rent (as a homeowner would count their mortgage), it jumps to 22.5% of net.
Zan86
Senior Member
posted: Jul. 9, 2009 @ 10:39a
Yeah if you rent you can just include both like Speculator!
FuzzyWombat
Senior Member
posted: Jul. 9, 2009 @ 11:22a
1%
chris8796n
Member
posted: Jul. 9, 2009 @ 11:29a
12% all from the mortgage.
I wouldn't agree with your rating systems, 29% DTI is excellent or even good? Maybe 10%, 20%, 30% and 40% would be better groupings with your classifications.
In terms of consumption debt (money that was used to buy stuff/services that are being paid back in installments or lumpsum at some point in the future), Non-RE debt monthly payment is probably 1.5% of gross, higher than I expected - was hoping for some ridiculously small amount like .5% or something. I could reduce this to zero, but the rates are really really low.
Wow, only 23.3% of gross, and I thought I was up shits creek. Adding in a portion of rent, I get 38.5% gross.
Of course I'm not going to be able to buy anything near as cheap in the areas I want to live in, so rent puts me way ahead of the mortgage and tax crowds.
Either way, its time for a part time job.
Edit: I didn't include credit cards pif. You guys counting that?
6% (student loans), but I rent. 22.7% including rent as my "mortgage".
Zan86
Senior Member
posted: Jul. 9, 2009 @ 11:53a
I would include credit cards if you pay a fixed amount per month or have excess debt. Obviously capacity is KEY!! But the reason we shouldnt include other expenses cause those can easily change, as in downgrade internet/cable, buy cheaper food, dont go out as much etc.... and they are not DEBT! Debt is the keyword in the ratio.
Technically (to a lender) I'd have to add minimum credit card payments, but this is really just shuffling money around. The payments don't come from income in the first place so I don't see how they could be a factor in debt/income.
wilkinru
Senior Member
posted: Jul. 9, 2009 @ 12:20p
Zan86 said: I would include credit cards if you pay a fixed amount per month or have excess debt. Obviously capacity is KEY!! But the reason we shouldnt include other expenses cause those can easily change, as in downgrade internet/cable, buy cheaper food, dont go out as much etc.... and they are not DEBT! Debt is the keyword in the ratio.
So do 2 calculations:
One with the bare minimum, and one which is more inline with realistic spending. I know I spend about $130 on gas per month, but it was $120 last month. I need to spend this amount. Cable/internet, sure I could spend $40, but I spend $90 right now.
Knowing your cash flow is pretty darned important.
I know right now that I am spending 40.44% of my income on expenses - some less required than others. Means 59.56% of my income can go to investments. Which means that my expense % will probably go down next month.
I do the dividend/bond style of investing, so I even care about my investment income too. For the first time in my life, I know I will not starve. In fact I probably could even have a cell phone and a couple days at a cheap hotel if I was homeless.
Little rant: Why are people NOT scared of being homeless out on the street? I am VERY afraid of this.
LeveragedSpeculator said: 2.24% of net. If you include rent (as a homeowner would count their mortgage), it jumps to 22.5% of net.Back end DTI ratios always include ALL your monthly obligations (rent/mortgage, etc...) and are ALWAYS based on GROSS income.
MoneyOCD
Senior Member
posted: Jul. 9, 2009 @ 12:31p
Zan86 said: Hello, since most people here are pretty thrify, i thought it would be pretty interesting if everyone posted their DTI ratios. For those of you who dont know, its just total monthly debt service/gross monthly income.
Under 30% = excelent 30-36% = Good 36 - 40% = borderline 40% ++ =ouch!
Mine is 47% so obviously i am a letter over-leveraged!
monthly debt service/gross monthly income - that is useless formula becasue debt service is what you really pay. Your ratio can show 50 % if all money goes to pay off debt and can show 10% if you pay minimum only. that would be ouch and not the first one.
total debt/gross annual income - that is more appropriate way to look at it, not?
I thought it was based on minimum payments. What happens if you pay off a $30k credit card? Is your debt to income for that month like 500%?
staci86
Senior Member
posted: Jul. 9, 2009 @ 12:38p
DTI is expressed as a ratio of your minimum debt obligations to your gross income.
Certain non-debt items, such as property taxes and homeowners' insurance, are also added in for those individuals who own homes.
People who have co-signed on a loan also may have those payments added to their DTI, even if another party makes the payment, although this obligation can be waved in some cases if the paying party has been on-time for a specified period.
jeezy creezy.. He just asked what the DTI was.. Not which ratio is a better measure.. Only few seem to be answering that Mine is 200%.
For the debate purpose: DTI might not be the best ratio of financial health, which I agree with, since you could take on a lot of debt and be worth a lot more and still be in a healthy financial situation, EVEN if you have marginal cashflow but have a large appreciation (like investing in undervalued stocks that give no dividend). Perhaps you have a large gain from capital appreciation rather than regular income. What if you have volatile or illiquid investments? So NO ratio is perfect. Generally would be a good idea to use a combo of them.
DTI does give a general idea of leverage. so it does have some use.
wilkinru said: Zan86 said: I would include credit cards if you pay a fixed amount per month or have excess debt. Obviously capacity is KEY!! But the reason we shouldnt include other expenses cause those can easily change, as in downgrade internet/cable, buy cheaper food, dont go out as much etc.... and they are not DEBT! Debt is the keyword in the ratio.
So do 2 calculations:
One with the bare minimum, and one which is more inline with realistic spending. I know I spend about $130 on gas per month, but it was $120 last month. I need to spend this amount. Cable/internet, sure I could spend $40, but I spend $90 right now.
Knowing your cash flow is pretty darned important.
I know right now that I am spending 40.44% of my income on expenses - some less required than others. Means 59.56% of my income can go to investments. Which means that my expense % will probably go down next month.
I do the dividend/bond style of investing, so I even care about my investment income too. For the first time in my life, I know I will not starve. In fact I probably could even have a cell phone and a couple days at a cheap hotel if I was homeless.
Little rant: Why are people NOT scared of being homeless out on the street? I am VERY afraid of this.
Because I have a good emergency fund and good friends and family who would lend me a place on their couch for a bit.
wilkinru said: Zan86 said: I would include credit cards if you pay a fixed amount per month or have excess debt. Obviously capacity is KEY!! But the reason we shouldnt include other expenses cause those can easily change, as in downgrade internet/cable, buy cheaper food, dont go out as much etc.... and they are not DEBT! Debt is the keyword in the ratio.
So do 2 calculations:
One with the bare minimum, and one which is more inline with realistic spending. I know I spend about $130 on gas per month, but it was $120 last month. I need to spend this amount. Cable/internet, sure I could spend $40, but I spend $90 right now.
Knowing your cash flow is pretty darned important.
I know right now that I am spending 40.44% of my income on expenses - some less required than others. Means 59.56% of my income can go to investments. Which means that my expense % will probably go down next month.
I do the dividend/bond style of investing, so I even care about my investment income too. For the first time in my life, I know I will not starve. In fact I probably could even have a cell phone and a couple days at a cheap hotel if I was homeless.
Little rant: Why are people NOT scared of being homeless out on the street? I am VERY afraid of this.
My mortgage takes up 21% of our monthly income. Revolving expenses take up another 15%. Need to get those expenses down.
Zan86
Senior Member
posted: Jul. 9, 2009 @ 2:25p
borisnotthespider said: jeezy creezy.. He just asked what the DTI was.. Not which ratio is a better measure.. Only few seem to be answering that Mine is 200%.
Yes thank you!! This was my question. Banks use this ratio and i was just asking a simple question, not trying to debate. If we wanted to do a true measure then i would ask everyone to do a full cash flow analysis and we can calculate what % of your gross income is spent on EVERYTHING and what your coverage is etc.... But to simplify things lets just stick to DTI..
Zan86 said: Yes thank you!! This was my question. Banks use this ratio and i was just asking a simple question, not trying to debate. If we wanted to do a true measure then i would ask everyone to do a full cash flow analysis and we can calculate what % of your gross income is spent on EVERYTHING and what your coverage is etc.... But to simplify things lets just stick to DTI..Right, I agree that it's very helpful but a lot of people out there have no idea what DTI is, much less how to calculate it. Although it's not exactly rocket science, I would explain this to people, since the responses are otherwise not meaningful and are all over the board.
Zan86 said: Its funny if i sold my car my ratio would drop HUGELYYes, this is recommended action for those who are currently looking to buy a home and will need loan. Could save many thousands in interest or points.
tolamapS
Senior Member - 2K
posted: Jul. 9, 2009 @ 6:39p
We need a full blown accounting model, just like income statement is for companies.
Need to account for:
- rent / mortgage expenses, - other living expenses (groceries, gas, necessary clothing), - debt expenses (excluding rent / mortgage), - entertainment expenses (ex. hookers and blow), e.g., restaurant, theater, vacation, etc, - one time items, - etc (e.g., hookers and blow).
Debt is money you borrowed that you are paying back, e.g., credit cards, installment loans, store cards, etc.
Can further classify debt according to categories, e.g., student loans, alimony settlement, wedding expense, etc.
"Pure" debt-to-income, as reported by your credit bureau might be misleading. What is you owe money to loan sharks, or have a lease, which technically is a liability, i.e., debt.
It varies greatly. On a good month at FW (when there's a lot of good deals), I screw myself.
Rajjeq
Senior Member
posted: Jul. 9, 2009 @ 9:50p
I hate to be difficult, but this metric is useless as a measure of financial health. Let us say someone has a DTI, for example, of 50%, at 2000/4000. That would seem to be bad. But DTI says nothing about liquid assets or total debt to total income. The fellow could have $300k of liquid assets and the ability to extinguish his debt at will. So what is the point of this ratio?
staci86
Senior Member
posted: Jul. 9, 2009 @ 10:01p
Rajjeq said: I hate to be difficult, but this metric is useless as a measure of financial health. Let us say someone has a DTI, for example, of 50%, at 2000/4000. That would seem to be bad. But DTI says nothing about liquid assets or total debt to total income. The fellow could have $300k of liquid assets and the ability to extinguish his debt at will. So what is the point of this ratio? The DTI ratio is the best numerical predictor of loan performance for the majority of American consumers, whose ability to repay is not based on liquid assets, but rather, the ability to continue earning to pay off debts incurred to cover costs of living and material wants. When you disregard outliers making heavy use of credit for business, those individuals with high net worth, and FWF types gaming the system, no other factor comes close to demonstrating the ability to repay. The middle class must make use of credit for large ticket items, and the ability to repay this debt is most heavily influenced by earning potential. The best measure of earning potential compared to debt is DTI. In short, people whose income exceeds their debts by a comfortable margin are low risk borrowers.
The underwriting behind the subprime credit crisis failed mainly in allowing high-DTI loans to be made, through exotic means of calculating DTI, such as stated income, alternative income, family income, etc. It also allowed for excessive DTI ratios by expanding full doc loans up to as high as 60% DTI if the borrower could show positive cash flow on their bank statements. That was a huge mistake, as these borrowers were taking on debts that required both their income to not decrease any, and their expenses to not increase any, if they were to have any chance of repaying the loan. When their ARM or pay-option reset upwards, the very thin margin of error in their DTI made their bills unaffordable, and forced the loan into default.
Skipping 17 Messages...
staci86
Senior Member
posted: Jul. 10, 2009 @ 1:16p
newyork4me said:
I am actually quite curious what incomes people that owe $1 mil on their house have that makes them think they should buy a new car
Senior custodial scientist, soon to be earning $7.25 per hour.
Another satisfied stated income mortgage borrower!
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