How To Be A Sexy Borrower

No creditor is gonna want want a piece of your sweet assets these days unless you’ve got a nice fat down payment
and a plunging debt-to-income ratio that reveals a nice plump credit score. Here’s the new rules of credit-worthiness game:

THEN | NOW
Best credit score: 680 | 720
Down payment: 0-10% | 10-20%
Debt-income ratio: 55-60% | < 41%

[via USAA Magazine (PDF)] (Photo: me and the sysop)

Comments

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  1. JohnAllison says:

    This is good. Banks going back to basics.

    Banks lowered their requirements on the gamble that housing price increases would out strip the risks taken.

    Who needs 20% down when a foreclosure would net more to the bank than the original loan? Well, as we know, those days are over. With it the banks have gone back to their roots, conservatism.

  2. pecan 3.14159265 says:

    Does the debt/income ratio only calculate your “permanent” debt as in loans, or does it include bills, credit card spending, etc.

    • ADismalScience says:

      @pecan 3.14159265:

      Revolving debt is part of it. Recurring bills for utilities and services aren’t unless you keep them as part of a rolling credit card balance.

      • bonzombiekitty says:

        @ADismalScience: Just to be clear, it only counts if the debt is carried over from the previous month. If you pay your credit card bill off fully every month, then I don’t think it counts.

        According to [www.bankrate.com] you shouldn’t include things like groceries, entertainment, utilities, and gas. That’s my entire credit card bill, which I pay off every month.

        According to that calculator, my ratio is 11%. It’s still well under 41% if I give my monthly take-home pay.

        • ADismalScience says:

          @bonzombiekitty:

          Right. “Revolving” debt. Things you roll over from month to month are considered “revolving” – intra-month credit card usage is not typically counted.

    • savvy9999 says:

      @pecan 3.14159265: My latest couple of credit reports indicated that my average CC *bill* was taken into account insofar as the ratio was concerned. It’s not what you roll over, it’s what you rack up.

      Case in point: I haven’t paid a finance charge on a CC balance in 10+ years, pay it off every month, but my report indicated that revolving debt to limit ratio was high– and it is– I typically pay off $6k+ a month in CC bills, maybe up to 60% of my limits.

    • Blaaaah says:

      @pecan 3.14159265: There seems to be a lot of confusion on what to Debt to Income (DTI) is.

      Your DTI is your monthly expenditures (rent, car payment, credit card payment, insurance, discretionary spending) divided by how much you bring in a month. There are different types of DTI, but what I described is pretty much the most used (and most important) measure.

    • TreyWaters says:

      @bonzombiekitty: What I find alarming is the fact that all of these calculators DO base their calculations off of gross salary and existing debt – ignoring all other financial obligations (e.g. groceries, car insurance, utilities, …)

      My wife and I know about how much house we can afford, and recently spoke with a loan officer about prequalifying (just to make sure we ‘fit’ within these new ‘stricter’ standards. We are looking in the $300k range (with a $240k mortgage). He said we qualified “easily” for a $750k mortgage.

      I get the same thing from online calculators as well.

      Here’s the funny thing. When I plug in NET pay (not gross), and key in all of our monthly obligations as “debt payments”, most calculators give us a mortgage of about where we want it to be.

      Sure, we’re not maxing out our 30-40% mortgage-to-income potential, but we’re building in a fun/safety net. We may only have a ~20% MtI ratio, but that means we’ll have money left over at the end of the month. And, if one of us loses our job…it’ll be tight, but we won’t be (as) worried about making our mortgage payments.

  3. rockasocky says:

    Can you please stop using this scary/boobalicious picture? Her face frightens me and her chest makes me envious.

    • Applekid ┬──┬ ノ( ã‚œ-゜ノ) says:

      @rockasocky: @DashTheHand: Well I think she’s rather attractive. I suffer a weakness for girls with eyebrow piercings. And teeth. And breasts.

      (in before a snarky “and a pulse”)

      • bonzombiekitty says:

        @Applekid: and even the pulse is optional ;)

        (kidding)

      • Eyebrows McGee (now with double the baby!) says:

        @Applekid: In college my friends mocked my low dating criteria by claiming I had none. “Speaking English is a criterion!” I protested. And then dated a foreign guy who didn’t. Dammit.

        Who says a pulse is necessary? ;)

        • Applekid ┬──┬ ノ( ã‚œ-゜ノ) says:

          @Eyebrows McGee (on Twitter: LPetelle): Good to know the language of love bypasses all country borders.

          Then again, I find the language of “omg you just ate that meatball right off my place what the hell is the matter with you?!” is pretty universal too.

    • Rectilinear Propagation says:

      @rockasocky: I remember there being a lot of comments about this photo when it was first posted in a Friday Flickr Pool post.

      I remember a lot of people liking it but it seems like everyone commenting below this discussion is wearing their “no fat chicks” t-shirt.

    • Oranges w/ Cheese says:

      @rockasocky: How kind of you to be so nice to the girl in question. Maybe she reads this website and doesn’t appreciate your comments. Ever think of that?

      Glad to know you only accept sticks with no boobs as “pretty”.

  4. bonzombiekitty says:

    My credit score is good, and I think my debt to income ration should be fine. My problem is the down payment. It’s going to take me a few more years to afford a down payment of 10% to get a decent house in this area (i.e. one that isn’t about to fall down and/or in the ghetto).

  5. Yossarian says:

    Why do you hate Rich Uncle Pennybags and his beauty contest winnings?

  6. DashTheHand says:

    Seconded, viewing this picture immediately after eating reverses the food consumption process. Not out of envy, just ew.

  7. HarcourtArmstrong says:

    I know people with all of the above that still can’t get a loan.

  8. h3llc4t, breaker of office dress codes says:

    Thirded on the picture. Wasn’t there something different there this morning?

  9. noone1569 says:

    Woo, too bad my credit score is wacked.

    Even with the wife gone and my footing the entire apartment, I am still only at 33% debt to income ratio!

  10. KyleOrton says:

    41% debt to income?! SERIOUSLY?!

    Well, that will fix everything.

  11. lannister80 says:

    OMG, please stop posting that chick’s picture. NOT hot OR sexy.

    /vomit

  12. PSUSkier says:

    So can anyone clarify if that includes say rent on an apartment?

  13. Blaaaah says:

    That DTI requirement is whacked. Previously listed at 55%-60%? I worked as a Mortgage Broker for a month, and that was the highest DTI you could get approved with. I’m thinking 41% is the worst you could get away with if everything else is alright.

    This isn’t a sexy borrower, this is just the new ‘bare minimum’ I think.

  14. Oranges w/ Cheese says:

    God. That puts me at the very bare minimum. My score is around 730 and there’s absolutely no way I could put down 20% of a house around here. That’s upwards of $15,000 if I’m LUCKY!

  15. whitjm5 says:

    @ lannister80

    +1. though my “/vomit” command failed. Blech.

  16. Ouze says:

    i dont know whats up with you guys, that chick is super super hot.

  17. Rayzincrisp says:

    One question I have always had… When using online calculators to calculate credit scores/debt to income ratios, Do you use Gross income or Net income?