Derek and Natasha have applied for a home equity loan

They have applied for a loan of $45000 at a fixed rate of 4.75% for 15 years.

lets find out the monthly mortgage on above terms

Loan amount             PV   = 45000

No. of payments         n = 180 ( 15 years *12)

interest rate                i =   0.3958333%   ( 4.75% /12)

Future value of loan   FV = 0

for the above parameters, we have to determine PMT, which will be the monthly mortgage payments

HTI      = Existing Mortgage + Proposed Mortgage / Gross monthly income *100

           = 2150   +350.02 /   8000

           = 31.25%

DTI =     Housing Payments + Other debts   / gross monthly income *100

         = (Housing Payments+ car loan +cr card loans + student loans )/ gross monthly income *100

          = ( 2150   +350.02 + 635 + 400 + 125 ) / 6000   * 100

          = 3660.03 / 6000 *100

         = 45.75%

The DTI of 45.75% is higher than the credit unions Maximum limit for DTI of 43%

hence they do not qualify for this loan.

What other options?

Maximimum DTI =43% of gross monthly income

                        = 43% * 8000

                        = 3440

their current monthy debts is 3660 ( including proposed mortgage)

Hence they have an excess debt of    $220 per month ( 3660 -3440). They can try to pay the students loan in full so that the monthly debt is reduced. They can look out for options to reduce their credit card monthly payments by either refinancing the loans, with a lower interest rate or through a higher repayment tenure which would reduce their monthly debts. they can try for a personal finance and try to foreclose any possible loans, or re-negotiate for a lower interest rates- like refinancing to bring down their overall monthly debt payments.

The existing mortgage- options of refinancing at a lower rate to be seen. a sizable down-payment if arranged can bring down the monthly mortgage on these loans, there by improving the DTI

please see the attached file.