I agree with DTI in itself being meaningless. Assuming your income is $1 million/month, if you had 70% DTI, you'd still have $300k/month leftover to somehow get by. I'm sure a FWFer would find a way to make it work. But if you tried that 70% DTI on a $20k/year income, it'd be considerably more difficult to live on.

It's one metric for lenders but this is far from an accurate measure of cashflow in itself.

This is Fatwallet. A better measure for Fatwalleter's is their (Net Worth to Net Income Ratio).

Yeah DTI makes thing simple for stupid bankers.. I work for the Federal Gov as a bank regulator and can tell you that we dont EVER use DTI. We use something called CDRC (capital debt repayment capacity) which takes into account EVERY expense you have and what the remainder is after all your debt has been serviced. You mainly see DTI on scorecard loans, as the whole purpose of a scorecard loan is to be quick, simple, and lack analysis.

Zan86 said:Yeah DTI makes thing simple for stupid bankers.. I work for the Federal Gov as a bank regulator and can tell you that we dont EVER use DTI. We use something called CDRC (capital debt repayment capacity) which takes into account EVERY expense you have and what the remainder is after all your debt has been serviced. You mainly see DTI on scorecard loans, as the whole purpose of a scorecard loan is to be quick, simple, and lack analysis.This is incorrect. Business profitability models are significantly more complex, so we use different ways to calculate its much more complex finances, which are often based on EBITDA, debt coverage ratio, excess cash flow, fixed charge coverage ratio, capital expenditures, tangible net worth, etc...

Individual finances are significantly less complex and are much easier to analyze. We also have a ton of statistical models available that are very helpful in analyzing your ability to repay based on DTI, credit scores, job stability, LTV and liquid reserves.

Zan86 said:Who said i look at business loans? i look at agriculture loans and a majority are people who have LLC's or sole priopriorships at least at my level. LTV isnt a primary source of repayment and i wouldnt weight in too heavy. Everything you mentioned is weighted in, but the most important factor is CDRC which calculates cash flow. When we start getting into the larger more complex loans, i agree we use ebitda/interest, DSC, total debt/ebitda, LT debt/ Lt debt + NW, FCF etc.. Who do you work for?Not that it matters for the purposes of this discussion, but I am a senior associate with an AM100 firm with offices throughout the country and routinely deal with loans from a few million dollars to well over a billion.

Once again, when it comes to residential home mortgage lending, statistics indicate that the most stable and least default prone borrowers tend to have LTV's of 80% or below (LTV's are lower if it's a condo or if the area is subject to rapid price declines), FICO's of 740+ (not FAKO's), 28/34 DTI (28% mortgage-related indebtedness and 34% overall indebtedness), at least 6 months liquid reserves and at least 2 years of employment in the same line of work (those with higher degrees get credit towards it). There are always exceptions based on individual circumstances but this is the general profile of the prime home mortgage borrower and the mortgage industry has plenty of statistics to support this profile.

For myself, no debt. But I do work in tha auto loan business, and you should see some of the DTI ratios for people who owe $1million on their house.

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 people have money, insurance, and the ability to get a job? You must be terrified when you leave the house, all those dangers lurking everywhere.

I'm alway afraid of this. But being a young strong man with a strong work ethic and many skills, I'm not too worry. I try not to overspend. I just feel bad for all the old lonely geezers out there or the Joesters with only three fingers. They need the system. Where else can they seek helps?
Example is here: http://www.lifewithoutlimbs.org/

What would Nick do?

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!