Understanding Loan Product Advisor s Determination of Total Monthly Debt for Conventional Loans

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1 Understanding Lan Prduct Advisr s Determinatin f Ttal Mnthly As indicated in Freddie Mac s Single-Family Seller/Servicer Guide (Guide) Sectin , the Brrwer's liabilities must be reflected n the Mrtgage applicatin and cnsidered when qualifying the Brrwer. Fr Lan Prduct Advisr t accurately assess the Mrtgage and determine the ttal mnthly debt-t-incme (DTI) rati, all the Brrwer's debts incurred thrugh the Nte Date must be reflected in the data submitted t the system. This includes debts frm yur review f the Mrtgage applicatin, credit reprt, Brrwer s paystubs (if prvided) and ther file dcumentatin in accrdance with Guide requirements. The accuracy f the DTI rati calculated by Lan Prduct Advisr is dependent upn the accuracy f the data entered. This reference prvides infrmatin t help yu understand hw the liability data entered in Lan Prduct Advisr is prcessed s yu can ensure the cmpleteness f the liability infrmatin being entered and recncile any differences between Lan Prduct Advisr s DTI rati and yur DTI rati fr cnventinal lans. Which liabilities are included in Lan Prduct Advisr s Ttal Mnthly Debt? Lan Prduct Advisr uses the infrmatin yu prvide t determine whether t include a liability in the Ttal Mnthly Debt. All liabilities listed n the Mrtgage applicatin and ther file dcumentatin shuld be entered in Lan Prduct Advisr; hwever, certain liabilities may be excluded frm Lan Prduct Advisr s Ttal Mnthly Debt based n the liability type and hw many payments remain, as described in Guide Sectin The table belw lists each type f liability, its definitin, and the number f mnths left t pay fr Lan Prduct Advisr t include it in the Ttal Mnthly Debt. Lan Prduct Advisr Liability Type Lan Prduct Advisr Definitin Mnths Left t Pay Alimny Peridic amunt paid under terms f divrce decree/separatin agreement. 11 r mre Child Supprt Peridic amunt paid t prvide fr children after divrce r separatin. 11 r mre Hme Equity Line f Credit (HELOC) Mnthly amunt paid fr financing that cnsists f a revlving line f credit secured by a lien. Installment Peridic amunt paid fr brrwed mney that is repaid in several successive payments, usually at regular intervals, fr a specific amunt and specified term (includes debts that are in a perid f either deferment r frbearance; fr example, a deferred student lan). Refer t Guide Sectin (a) fr ptins n determining the mnthly payment amunt fr student lans. 11 r mre Nte: Vertical revisin bars " " are used in the margin f this quick reference t highlight new requirements and significant changes Octber

2 Lan Prduct Advisr Liability Type Lan Prduct Advisr Definitin Mnths Left t Pay Lease Payment Peridic amunt paid under the terms f lease agreement (fr example, an aut lease). Cllectins, Judgments and Liens Peridic amunt paid fr a lien upn the prperty f a debtr resulting frm a decree f the curt. Mrtgage Mnthly amunt paid fr a lan secured by a lien n real estate held in fee simple r n an acceptable leasehld estate (includes principal, interest, taxes and insurance and, when applicable, leasehld payments, hmewner assciatin dues, etc.). Open (end) / 30 Day Charge Accunt Peridic amunt paid fr brrwed mney that is t be repaid in 30 day intervals (fr example, an American Express accunt). Other Liability A general categry t disclse detail f ther brrwer liabilities. Revlving Charge Peridic amunt paid n an pen line f credit that is subject t variable payments in accrdance with the balance (fr example, a credit card). Separate Maintenance Expense Peridic amunt paid under terms f separatin agreement. 11 r mre Taxes Peridic amunt f lcal, state r federal taxes that are due. Lan Prduct Advisr als accepts the fllwing liability types; hwever, they are nt included in the Ttal Mnthly Debt fr cnventinal lans: Child Care - the peridic csts f prviding care fr the brrwer's dependents. Jb related expenses - the nging bligatins incurred by the brrwer which are prerequisite t retaining emplyment (e.g., prfessinal assciatins, special unifrms r tls, etc.). Other expenses/debts - a general categry t disclse detail f ther brrwer expenses and debts (fr example, lans n financial assets). In additin t data entered in the Mnths Left t Pay field, Lan Prduct Advisr als uses the infrmatin yu prvide fr the fllwing tw indicatrs t determine if the liability is included in the Ttal Mnthly Debt: Paid Off at r Befre Clsing? Excluded? Octber Page 2

3 When entering data in Lan Prduct Advisr, if the liability will be paid ff at r befre clsing in accrdance with the applicable Guide requirements, Yes shuld be entered fr Paid Off at r Befre Clsing?. If the liability shuld be excluded frm the Ttal Mnthly Debt calculatin fr anther reasn as permitted by Guide Sectins , Yes shuld be entered fr the Excluded? indicatr. If bth the Paid Off at r Befre Clsing? and Excluded? indicatrs cntain N, Lan Prduct Advisr evaluates the liability type and the Mnths Left t Pay data t determine whether t include the liability in the Ttal Mnthly Debt. Fr example, if an installment lan has five mnths f payments remaining, Lan Prduct Advisr will exclude this liability frm the Ttal Mnthly Debt because the Mnths Left t Pay data indicates less than 11 mnths. Hw des Lan Prduct Advisr determine the debt fr the DTI rati? When Lan Prduct Advisr determines the debt fr the DTI rati, additinal liabilities such as husing expenses and ther mrtgage liabilities are als cnsidered. The table belw prvides a list f all Brrwer debts used in determining the DTI rati. Type f Debt Includes: Prpsed Mnthly Husing Expense fr the Subject Prperty First Mrtgage Principal and Interest Other Financing Principal and Interest Hazard Insurance Real Estate Taxes Mrtgage Insurance Hmewner s Assciatin Dues Other expenses related t husing which are nt included in the listed values, excluding utility payments Nn-Mrtgage Liabilities Liabilities fr all ccupant and nn-ccupant brrwers: Alimny Child Supprt Installment Lease Payment Lien (includes cllectins, judgments and liens) Open (end) / 30 Day Charge Accunt Other Liability Revlving Charge Separate Maintenance Expense Taxes Nte: Refer t the Which liabilities are included in Lan Prduct Advisr s Ttal Mnthly Debt? See sectin abve fr additinal infrmatin n when the liability is included. Octber Page 3

4 Type f Debt Includes: Rent Payments reprted under Present Mnthly Husing Expense Rent payment if it will cntinue after the Nte Date. Examples include: Rent fr nn-ccupant brrwer s Primary Residence Rent paid when the subject prperty is a secnd hme r Investment Prperty Nte: If rent is apprtined amng multiple brrwers, either enter the full rent under ne brrwer r apprtin the rent acrss brrwers t avid duble cunting. Mrtgage Liabilities (Liabilities remaining after the Nte Date fr all prperties) Rental lss fr subject prperty: Net rental lss fr the subject prperty reprted under the Incme Type Subject Prperty Net Cash Flw. Rental lss fr ther prperties: The aggregate lss entered as a negative number in the Net Rental Incme fr all nn-subject prperties. The Net Rental Incme is the net incme (r lss) fr each prperty n the Schedule f Real Estate Owned (REO) remaining after the Nte Date; Lan Prduct Advisr sums the Net Rental Incme/Lss by prperty and includes any lss as debt. Mrtgage payment(s) when there is n rental incme: Mrtgage and/r HELOC payments are included when: The Grss Rental Incme and Net Rental Incme n the Schedule f REO details are nt prvided r equal t zer, and Nt marked as Paid Off at r Befre Clsing? r Excluded?, and The Prperty Dispsitin frm the Schedule f REO is Rented r Retained Insurance, Taxes, Maintenance and Miscellaneus frm the Schedule f REO is included when: The Grss Rental Incme and Net Rental Incme frm the Schedule f REO details are nt prvided r equal t zer, and The Prperty Dispsitin is Rented r Retained Nte: T avid duble cunting a liability amunt, include nly the amunts nt entered as part f anther Mrtgage liability. Fr example, real estate tax payments included in the mnthly Mrtgage payment shuld nt als be included as Insurance, Taxes, Maintenance and Miscellaneus in the Real Estate Owned details. A Mrtgage r HELOC assciated with a Prperty Dispsitin f Sld r Pending Sale is nt included in the debt. Hwever, if a pending sale des nt meet the criteria fr missin frm the debt, it must be resubmitted t Lan Prduct Advisr with a Prperty Dispsitin f Rented r Retained. Octber Page 4

5 Tips fr Submitting Debts The infrmatin belw prvides additinal tips and example scenaris t indicate hw Lan Prduct Advisr wuld prcess the data yu submit t determine the Ttal Mnthly Debt, alng with tips fr identifying and reslving data discrepancies. Paid Off/Excluded Debt - If the liability will be paid ff at r befre clsing r is eligible t be excluded frm the Ttal Mnthly Debt fr anther reasn, the debt may be marked as Paid Off at r befre Clsing r Excluded, as applicable. Lan Prduct Advisr will exclude debts indicated as paid ff r excluded frm the Ttal Mnthly Debt. Number f Mnths Remaining - In accrdance with Guide requirements, Lan Prduct Advisr mits certain debts fr example, alimny, child supprt, installment, and separate maintenance expense with less than 11 mnths remaining frm the Ttal Mnthly Debt. Liability Types - Debts the Guide des nt require be included in Ttal Mnthly Debt fr example, child care, jb-related expenses and ther expenses/debts (such as lans n financial assets) are mitted by Lan Prduct Advisr frm the Ttal Mnthly Debt. Example Scenaris Liability Type Mnths Remaining Mnthly Payment Paid Off? Excluded? REO Dispsitin Lan Prduct Advisr Ttal Mnthly Debt Revlving 12 $50 N N N/A Included Revlving 5 $25 N N N/A Included Revlving $75 Y N N/A Excluded Installment 8 $75 N N N/A Excluded Mrtgage 158 $1,800 Y N Sld Excluded HELOC 80 $400 N N Pending Sale Excluded Data Accuracy Data accuracy is critical t Lan Prduct Advisr s assessment. When differences exist, use the fllwing tips t help yu identify the discrepancy and, if needed, crrect the data: Review the Lan Infrmatin Sectin fr the Ttal Mnthly Debt amunt and the messages n the Lan Prduct Advisr Feedback Certificate t cnfirm the accuracy f the liabilities entered. Fr each liability, check t see if the Paid Off at r Befre Clsing? Excluded?; and Mnths Left t Pay indicatrs in Lan Prduct Advisr prperly reflect the infrmatin in the lan file and Guide requirements were met. Octber Page 5

6 Fr liabilities assciated with the Brrwer s Schedule f Real Estate Owned, check t see if the Prperty Dispsitin indicatr in Lan Prduct Advisr prperly reflects the infrmatin in the lan file and Guide requirements were met. Ensure the Subject Prperty Net Cash Flw, if applicable, accurately reflects the infrmatin in the lan file. This dcument is nt a replacement r substitute fr the infrmatin fund in the Single-Family Seller/Servicer Guide and/r terms f yur Master Agreement and/r ther Pricing Identifier Terms Freddie Mac Octber Page 6