Why add in the payments in the DTI (debt to income ratio) of a borrower on a disputed collection account in which there is an arrangement to make payments?
Answer: Most borrowers and especially first time home buyer sometimes have a tendency to want the house which provides them with everything they desire. Without thinking about the consequences, of course. This includes all the amenities for good living, beauty, and conveniences. That said; these buyers sometimes forget that their budget is already being stretched somewhat and monthly items such as utilities, food, car insurance, health insurance, clothing, and medical bills are not included in their debt to income ratios. If there is a collection with a payment; it can throw the debt to income ratio out of bounds, and could actually put the borrower (s) in jeopardy of not being able to make their mortgage payment in a timely manner. This could eventually cause default, so it is much better to catch a debt to income ratio that is out of line prior to closing the loan.
Any monthly obligation that a borrower is paying can make a big difference when those monthly payment start at the first of each and every month. People sometimes take on more than they can actually swing on a monthly basis, because they have forgotten they actually like to go out to dinner occasionally. This is when they begin to realize they have made a blunder. Sometimes they want to blame the lender, but the buck stops with a potential borrower taking into consideration and making a budget at application adding up all monthly obligations to see if there is sufficient money to pay these necessities.
It is always necessary that a borrower (s) take responsibility for being knowledgeable and up-to-date on the loan process; their debts and other obligations, and the funds being used for down-payment and closing cost. When applying for a loan; it is especially important that all borrowers remember that they have to pay the same miscellaneous expenses along with the new mortgage loan payment, regardless. This can and does sometimes provide near and instant danger of mortgage default when people forget the above mentioned other items.
Safe harbor for and standard rule for a FHA loan product debt ratios are: 31% housing ratio and 43% total DTI (debt to income).