We are having a difference of opinion regarding what income & debts should be used when calculating the ATR (debt-to-income) for the 61st month of the loan (or 5 years after the first pmt date). Some feel we are suppose to use the same income and debts used to calculate the debt-to-income at 61 months that is used up front. However, some want to eliminate any debt that may pay off in the first 5 years (ie: a car loan that will be paid off in 3 years) when calculating debt-to income at 61 months. They feel it is unfair to the borrower to use that payment when it is going to be paid off. I know in training Jack referred to not using a payment that might be eliminated within 6 months in the calculation (up front) but I don’t remember anything about eliminating a payment that might pay out in a longer period say 3 years. Can you help?
I believe you are referring to the general QM rule in 1026.43(e)(2) which states you must take into account the monthly payment for mortgage related obligations based upon the highest payment in the first five years from the date the first regular periodic payment is due.
The total DTI at consummation, determined in accordance with Appendix Q, must not exceed 43%. Appendix Q states that debts of less than 10 months must be included if the debt will affect the consumer’s ability to repay – if it doesn’t affect their ability to repay and will be paid off in less than 10 months after consummation we can infer that it may be excluded. See below:
Appendix Q, Consumer Liabilities: Recurring Obligations: Debts lasting less than ten months must be included if the amount of the debt affects the consumer’s ability to pay the mortgage during the months immediately after loan closing, especially if the consumer will have limited or no cash assets after loan closing. Note: Monthly payments on revolving or open-ended accounts, regardless of the balance, are counted as a liability for qualifying purposes even if the account appears likely to be paid off within 10 months or less.