Debt to Income Ratios Improving

November 11, 2010 No Comments »


Here’s a bit of good news.

Consumers are spending less on monthly debt obligations nowadays, according to a study from credit bureau Experian.

The company said average monthly payments made by consumers in 25 metropolitan areas have decreased two percent in the past three years.

While it’s not a huge decline, it shows that consumers are reducing debt – it also shows that creditors, such as mortgage lenders, are lending less.

Earlier this week, the Fed said nearly $140 billion in mortgage debt was paid off by American homeowners between 2008 and the end of 2009

Nationally, consumers are spending $903 a month on their bills, which include things like credit card payments, auto loans and leases, and mortgage payments.

Consumers in Washington D.C. are spending the most, at $1,285, while Pittsburgh residents are spending the least, at just $763.

These monthly debt obligations make up the back-end of your debt-to-income ratio (DTI ratio), which is what mortgage underwriters rely on to determine how much you can afford, and whether you’ll actually qualify for the loan in question.

The housing payment alone makes up the front-end portion of your DTI ratio, and both have limits that can’t be exceeded.

With less outstanding debt (and falling home prices and mortgage rates), there’s a greater chance consumers will be able to afford the mortgages they apply for, though decreased risk appetite at banks and mortgage lenders nationwide has probably offset this somewhat.

Then there’s the issue of decreased income.

Related: What mortgage can I afford on my salary?

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