Debt Ratio Calculation

A Bank of America loan modification requires debt to income budget calculations that can be tough to figure out.  This is one of the most important parts of getting approved for a loan mod, so learning how the requirements work is important if you want to have the best chance of getting approved.  Here is some easy to understand details about how to figure your own debt to income ratio and prepare an acceptable budget.

The Bank of America debt to income budget requirements are set forth by the federal government under the HAMP program.  This means that every homeowner who applies is subject to the same requirements, and you must pass this first approval trigger before you can move on with your loan modification.  You will have to complete a loan mod application and give a detailed accounting of your monthly income, expenses and bank balances.  This information will be used to determine if your debt ratio is acceptable-it is a good idea to run your figures through the loan modification software calculator to make sure that your budget is passing the requirements.

There are actually two debt to income budget requirements-one is called the

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housing ratio and uses just your monthly mortgage payment, property taxes and insurance and any HOA dues.  The acceptable housing debt ratio must exceed 31% and there is no maximum percentage-it can be anything over the 31%.  If your current mortgage expenses is less than this figure, then you will not qualify for HAMP, you may be offered some other type of loan workout plan offered by Bank of America outside of the federal plan.

The simple formula for figuring your housing debt to income ratio is:

Total of monthly mortgage payment, property taxes, homeowners insurance, HOA dues DIVIDED by the Household Gross Monthly Income

The second debt to income budget requirement is called the back end ratio, and this figure totals ALL of your monthly expenses-including the housing, utilities, car payments, etc divided by the gross monthly income.  This figure will show the bank how unaffordable your current mortgage really is, and you may also be required to attend credit counseling if this figure is over 55%.

Sample Budget-Automatically!

This may all sound confusing and difficult to figure out by yourself, but it is really an important part of the entire Bank of America loan modification process so you need to know if you are passing the debt ratio or not.  You can use the loan modification software calculator to figure it all for you automatically, and also see just where you may need to make adjustments to your budget in order to pass these approval guidelines.  You can then use the sample monthly budget provided by the calculator to complete your final application and greatly increase your chances for approval.

Get help with your Bank of America loan modification application-use the #1 resource for homeowners, The Complete Loan Modification Guide kit and

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loan modification software calculator.  The kit provides step by step directions, required forms and the software calculator generates your very own sample monthly budget showing debt ratio and other critical approval triggers.  Avoid mistakes and increase your chances for approval-visit today.

5 Responses

  1. mo Said,


    what is the max % ratio for the housing expenses? I understand 31% is the minimum, what is the maximum? also whats the max for back end ratio? say all expenses including housing and back end are 80 % of the gross, is that way to hi? please reply need help here.

    p.s. if i applied and was denied, how long do i wait to re apply?



    Posted on December 5th, 2011 at 8:52 pm

  2. admin Said,

    Most homeowners are confused by the loan modification debt ratio requirements-the HAMP program mandates that your current housing ratio be GREATER than 31%, however there is no Maximum current debt ratio. Your loan must be able to be modified using the standard methods under the Waterfall Method-this is where you need to make certain that your financial worksheet shows just the right amount of monthly income, monthly expenses and assets so that you pass the approval guidelines. Make sure your debt ratio passes the guidelines-run your figures through the loan modification calculator to verify your own debt ratio.

    Posted on December 15th, 2011 at 5:50 pm

  3. admin Said,

    There is no maximum debt ratio percentage for qualifying under the HAMP loan modification plan. You do need to show a financial hardship, but also prove that if given the loan workout you will be able to afford to pay and maintain the new payment. If you have been denied already, you are allowed to re-apply with new, updated and revised financial information. Don’t submit the same figures again or you will just get the same result again. There is no waiting period, but just be sure to verify your financial worksheet figures by running them through the Loan Modification Calculator to be sure you are passing all the guidelines. You may need to make some adjustments and you need to do this before your re-submit. Good luck to you!!

    Posted on December 29th, 2011 at 2:32 pm

  4. al Said,

    When wells fargo does the caluculation to decided if we qualify will they use our Gross income… The amount we are paid ‘before’ the federal and state taxes are withdrawn.

    Should we use the Gross figures or Net amounts when completing the worksheet and financial statement to send to Wells Fargo to complete the loan modification?

    Thank you

    Posted on December 29th, 2011 at 6:05 pm

  5. admin Said,

    The Wells Fargo loan modification application asks for your Gross Income-that is because the federal program, HAMP, uses that figure to determine your current debt ratio and also to determine your new Target Payment. Your current debt ratio must exceed 31% of your gross income, and your current mortgage must be able to be modified using the Waterfall Method to achieve a new payment that equals 31%. If this sounds confusing, you can use a program designed specifically for homeowner use-The Loan Mod Calculator will automatically calculate and display your debt ratio, income and expense requirements and show you what your new Wells Fargo loan terms could be modified to. This information is critical to know ahead of time and will increase your chance at approval.

    Posted on December 30th, 2011 at 9:06 am

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