I don’t think you understand how debt to income ratios are computed.
All the lenders I have ever dealt with used gross income, not take home, in the calculations. The debt to income ratio equation is simply monthly fixed expenses divided by gross monthly income (before taxes and deductions).
Monthly fixed expenses include all debt, such as house payment or rent, COA/HOA fees, PMI, minimum payments on credit card and other revolving credit balances; car payments, alimony, child support, etc. Do not include grocery, telephone, and utility bills or any debt that will be paid off in the next few months. If your car loan will be paid off two or three months from now, it is not included in the equation.
Now you know how the debt to income ratio is calculated. The lender will look at your debt to income ratio as a quick and dirty estimate of the percentage of your income that is available for a mortgage payment after all other continuing obligations are met.
You may see conventional loan debt limits referred to as the 28/36 qualifying ratio. Those numbers refer to two percentages that are used to examine two aspects of your debt load – your housing expense ratio and your “total debt” to income ratio.
The first number – 28% – indicates the maximum percentage of your monthly gross income that the lender allows for just your primary housing expense. This ratio is the total of your primary housing expenses divided by your gross monthly income. Only include payments for the mortgage loan principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowner’s association dues as your housing expenses.
The second number – 36% – refers to the maximum percentage of your monthly gross income that the lender allows for housing expenses plus recurring debt – your “total debt”. Recurring debt includes the minimum monthly payment on your credit cards, child support, car loans, and any other recurring obligations that will not be paid off within a relatively short period of time (6-11 months). This second number is what is generally called the debt-to-income ratio (DTI).
Not all loans are the same. Conventional loan ratios are generally 28/36. FHA loan ratios are a little more generous, 29/41. VA loans allow a maximum debt to income ratio of 41. Since you are asking about an investment property purchase, the VA and FHA ratios won’t apply. You will have to work within the more conservative conventional loan ratios of 28% and 36%.
Lenders used to allow a DTI as high as 54% for borrowers with a high net worth and lots of verifiable liquid assets. In our current mortgage environment, lenders are tightening up their standards and not generally allowing exceptions to the 28/36 ratios. This will be especially true after December 1, 2008 for borrowers who want to use a Fannie Mae conforming loan for an investment property purchase. That is when Fannie Mae puts their new desktop underwriting rules in effect.
Now that you know that there are really two ratios (a housing expense ratio and a total debt to income ratio), you can compute your own ratios to determine how a car payment will affect your DTI. If your DTI is higher than 36%, you may need other mitigating factors in your financial statement to get an investment property loan from a portfolio lender.