In light of August, 2014 changes made to Fannie Mae’s mortgage loan waiting policy for borrowers who have experienced a short sale, we felt it would be useful to review the mortgage loan interval qualifying guidelines following a financial hardship event for the most popular mortgage loan programs.

Since employees might incur a wide variety of expenses related to their job, this article will cover only the following broad categories of tax-deductible job expenses

Your debt-to-income ratio, or debt ratio, is typically represented as the percentage of your income that goes toward paying your debt. A lot of lenders, especially mortgage and auto lenders, use your debt ratio to evaluate your credit worthiness, i.e., how much of a loan you can handle. For example, a mortgage lender will use your debt ratio to figure out the mortgage payment you can afford after your other monthly debts are paid. Debt ratio considerations are as important as your credit score. While your credit score reflects how responsible you are in paying your bills, your debt ratio gives potential creditors additional insight into your personal finances. Your debt ratio shows just how much debt you're juggling as compared to your income. It's possible that someone with a good credit score could be turned down for a mortgage or home loan because lenders feel the borrower is simply carrying too much debt, despite a steady history of on-time payments.

What is a Debt Ratio?
Your debt-to-income ratio can be a valuable number -- some say as important as your credit score.  It's exactly as it sounds: the amount of debt you have compared to your overall income.

A debt-to-income ratio (often abbreviated DTI) is the percentage of a consumer's monthly gross income that goes toward paying debts.  Speaking precisely, DTIs often cover more than just debts; they can include certain taxes, fees, and insurance premiums as well.  Nevertheless, the term is a set phrase which serves as a convenient, well-understood shorthand in the mortgage industry.  There are two main kinds of DTIs, as discussed below.

*Disclaimer – Loan guidelines change often and may have recently changed; be sure to consult with your lender about current requirements.

Two Ratios – Front End and Back End
Lenders use two types of debt ratios in determining a person’s ability to qualify for a mortgage. The front end ratio is real estate-related debt (mortgage principal and interest, real estate taxes, real estate insurance) divided by gross income. The back end ratio is real estate-related debt plus other liabilities listed on your credit report divided by gross income. Therefore, a person’s front end and back end debt ratios would be the same if there is no additional debt listed on the credit report. However, since most people have additional debt listed on their credit report, most borrowers have a higher back end ratio.

Anyone serious about increasing their credit scores should first take the time to understand how scores are calculated. By doing so, any effort put forth to increase credit scores is maximized. According to Fair Isaac Corporation (FICO), the percentages of importance in determining credit scores are: