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