Residual Income vs. DTI: What Are The Differences?


hey, guys, it’s Eric with lo VA rates
wearing red happy red Friday look down here and click that subscribe button we
want you to subscribe and follow us on youtube today we’re gonna talk about two
really important things residual income and DTI or debt to income ratio and
they’re different we’re also gonna talk about what they are first of all what
are they well it helps you figure out how much you can afford that’s right I’m
trying to stay in the frame here we want you to figure out how much you can
afford and these are two different ways to do it
first of all let’s talk about DTI debt to income ratio simple math equation you
put your debts okay above your income that’s a division thing if you’ve got
kids in school if you do two maybe hoping with your homework so we just
talked in a prior video hopefully you saw that we talked about figuring out
what your gross income is and what your debts are so let’s just say you have
about two thousand dollars a month in debt and keep in mind you got to take
your mortgage payment and put that in here so there’s the mortgage debt and
then there’s all your other debts that we’ve talked about you take that you
divide it by your income okay let’s say you’ve got $4,000 in income I’m gonna do
simple math today because I don’t want to look dumb on camera if you take two
thousand if you take two thousand divided by four thousand you get fifty
percent okay that’s a fifty percent debt to income ratio now we’ve talked about
not exceeding twenty eight or thirty six depending on what part of the debt to
income ratio you’re looking at this is a little high now we can go higher than
this in some cases but we need to be very careful whenever you have a high
debt to income ratio which is anything above about thirty six percent you’re
gonna want to then do this next test that we’re talking about and that’s the
residual income test I’m gonna erase this board so we can talk about residual
income so residual income is super unique to VA loans
I wish FHA and conventional and everybody else did it and one day they
might because this rachet residual income is what sets VA loans apart from
all of the loan types it’s an amazing calculation to help you
determine if you can afford the house you’re getting so what you do first as
we’ve talked about in other videos add up all your gross income all right we’re
just gonna say you make $5,000 in gross income you don’t know what gross income
is we’ve got some great videos that talk about that so you’ve got $5,000 in gross
income and then you want to take out all of the withholdings from your paychecks
that’s where you pull your paycheck out of the desk drawer or wherever you keep
it or I guess nobody even has paychecks these days it’s all online you go and
you start taking out taxes that they withhold you take out Medicare you take
out I think these taxes are called FICA taxes you take out Social Security you
take out all these nasty withholdings that we all wish we didn’t have and
you’ve got your net income so let’s just we’re gonna keep simple math today let’s
just say all the people have their hands in your paycheck there’s $4,000 left and
net income remember that then what you do is you start taking out all of your
other expenses there’s housing expenses like utilities there is your taxes for
the home that you’re buying or if you’re refinance in the home that you oh
there’s hazard insurance that’s fire insurance in case something happens to
your house you take out all of your expenses and you’re left with let’s just
we’re gonna keep simple math here today let’s say you’re left with $3,000 in
residual income here’s how I like to kind of sum all that up after you get
paid all of this junk comes out after you take care of all of your other
expenses what are you left with to like breathe and enjoy life and and save for
a rainy day the higher this number the better okay and the VA has a table which
we’ve talked about in other videos where based on where you live in the country
and your family size determines how much residual income you must have so let’s
just say for example you have to have a thousand dollars in residual income
that’s the chart you’re left you have $2,000 over sort of Mendon way down here
this means back to the person that had a 50% debt to income ratio even though
that’s high if you can come and show a lender that after everything
said and done you’ve got $2,000 more in residual income than the VA requires
you’re likely gonna be able to afford the house and still be comfortable and
not over purchase due to the fact that you’ve got such high residual income
anyhow thank you for watching please wet read every Friday if you haven’t already
done it subscribe below and listen we’d love that you guys watch us each Friday
we’ll see you next week at the same time

6 Comments

  • Another Great Video Brother

  • I’m sure this guy has a fitness channel as well.

  • Already checked in with Maurice to make sure all of you were safe after the earthquakes, but just wanted to extend my prayers to everyone!

  • where can get that shirt

  • cool content bro

  • nice video bro

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