Mortgage Underwriting - DTI calculation

Discussion in 'Credit Talk' started by huk09, Dec 27, 2009.

  1. huk09

    huk09 New Member

    Here is the situation:

    I am self employed (C Corporation) and applying for a house mortgage. I have a leased car ($400/month) that I use mostly business purposes (driving from work to clients). I take mileage deductions in my personal tax returns every year (say approx. $4,800/year)

    When calculating my debt-to-income (DTI) ratio, mortgage underwriter claims that she will add $400/month to my debt, which is fine. But she will also reduce my monthly income by $400 (=$4,800/12) because I took unreimbursed business expense deductions. I claim that business expense deduction was for the leased car usage and she should either count it as debt or income, but not both at the same time. Otherwise it becomes double counting. See math below:

    DTI = (debt + 400)/(income - 400)

    Is this an actual Freddie Mac underwriting rule or simply a misinterpretation by this underwriter?
  2. JoshuaHeckathorn

    JoshuaHeckathorn Administrator

    I believe it is a Freddie Mac rule to subtract unreimbursed business expenses from self-employment income. It's sad, but when it comes to underwriting loans for the self-employed these days, there really isn't anything in your favor.

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