Seattle and Tacoma Loan Modification Process

As previously stated, in determining whether to grant a loan modification, there are three central factors that a lender takes into consideration: 1) the financial hardship of the borrower; 2) whether the borrower is currently delinquent on mortgage payments or is at risk of becoming delinquent in the immediate future; and 3) the borrower’s debt-to-income ratios. While the first two factors seem relatively straightforward, understanding your debt-to-income ratios is oftentimes confusing and may seem complex; yet understanding your debt-to-income ratios is very important.

What is a debt-to-income ratio?

Simply put, a “debt-to-income ratio” (“DTI”) is the percentage of a homeowner’s gross monthly income that goes toward paying the homeowner’s debts. In the context of a home loan modification, two DTI ratios are taken into consideration: a “front-end” DTI ratio and a “back-end” DTI ratio.

How to Calculate Your Front-end DTI Ratio

To calculate your front-end DTI ratio, you divide your total “monthly first mortgage payment” by your gross monthly household income:

Monthly House Payment ÷ Gross Monthly Household Income= Front-end DTI Ratio

Your “monthly first mortgage payment” is often referred to as “PITIA.” “PITIA” is defined as principal, interest, taxes, insurance (including homeowners insurance and hazard and flood insurance) and homeowners association fees (if applicable). Note that if you pay property taxes, insurance, and/or homeowners association fees separately from your mortgage principal and interest, these expenses need to be added to your total “monthly first mortgage payment.”

How to Calculate Your Back-end DTI Ratio

To calculate your back-end DTI ratio, you add up all of your monthly debt payments (do not include any expenses that are not listed on your credit report), which may include:

• Your “house payment” or PITIA (this was used in calculating your front-end DTI)
• Your second mortgage or HELOC payment
• Credit card payments
• Automobile loan or lease payments
• Alimony/child support
• Educational/student loan payments
• Any personal loans
• Any other accounts reported in your credit reports

After adding all of these monthly debts up, you then take the total and divide it by your total gross monthly household income:

Monthly Debt Payments ÷ Gross Monthly Household Income= Back-end DTI Ratio

Why are your Debt-to-Income Ratios Important?

Because lenders want to avoid as much risk as possible, they will pay special attention to your DTI ratios. In essence, lenders use your DTI ratios as indicators of your ability to repay your debts. Therefore, if your DTI ratios are low, lenders may be more inclined to assist you because they believe that you have a higher probability of repaying your debts. On the other hand, if your DTI ratios are high, lenders may be less likely to assist you because they believe you have a lower probability of repaying your debts (and, therefore, you are a greater risk). Because your DTI ratios play such a significant role in the home loan modification process, it is a good idea for you to do a rough calculation of your own front-end and back-end DTI ratios. By doing your own calculation, you can estimate whether a lender is more likely or less likely to grant you a loan modification.

Today, lenders have specific target ranges and limitations on allowable DTI ratios for loan modifications. Although your lender may have slightly differing DTI ratio targets and limitations, most lenders are willing to grant loan modifications to homeowner’s whose DTI ratios are below 50%. Remember, lenders want to avoid risk and only want to extend loan modifications to homeowners who have a high probability of repaying their debts.

As always, remember that the earlier you look into the requirements of loan modifications and begin the process, the better. Additionally, seeking help early on is very important. Always remember that even if you are unsure about whether you qualify for a loan modification, it is better to ask earlier on. Lastly, remember that a qualified attorney who has experience in working with loan modifications can be extremely beneficial to you and can assist you in working directly with your lender and in protecting your interests.

Return to Loan Modifications Law Practice

Call Now for a FREE 15-minute phone consultation!

Attorney Robert Dickson

Attorney Robert DicksonThe core of Rob’s legal practice is civil litigation, with an emphasis on construction, real estate, and business law. He represents a wide range of clients, from large construction companies to individual homeowners. His is a practical approach to law, which strives to balance the need for a successful legal outcome with a client’s financial goals (or constraints). Outside of his private practice, Rob serves as an adjunct professor at the Seattle University School of Law where he teaches real estate litigation. [ Attorney Bio ]

    Contact
    our firm

    Attorney Thomas L. Dickson

    Thomas L. Dickson

    Tom is an experienced litigator and the founding partner of the firm. For over 30 years, he’s helped clients prevail in their real estate, construction, and business law matters.

    attorney profile
    Attorney Heather Burgess

    Heather Burgess

    Heather represents property owners and developers in all phases of real estate development, from pre-acquisition due diligence through local permitting and appeals.

    attorney profile
    Attorney Robert P. Dickson

    Robert P. Dickson

    The core of Rob’s legal practice is civil litigation, with an emphasis on construction, real estate, and business law. He represents a wide range of clients, from large construction companies to individual homeowners.

    attorney profile
    Attorney Daniel J. Frohlich

    Daniel J. Frohlich

    Dan’s legal practice focuses on civil litigation, real estate law, business law and probate law. He has more than 10 years of experience as an attorney serving clients throughout Western Washington.

    attorney profile
    Attorney Mark S. Johnson

    Mark S. Johnson

    Mark’s legal practice focuses on civil litigation, real estate law, business law and family law. He works tirelessly to help his clients achieve the outcome they are looking for.

    attorney profile
    Attorney Trevor A. Zandell

    Trevor A. Zandell

    Since graduating with honors from law school in 2005, Trevor has been serving the legal needs of businesses, individuals, and families across Southwest Washington.

    attorney profile
    Attorney Daniel E. Pizarro

    Daniel E. Pizarro

    As an associate at Dickson Frohlich Phillips Burgess, Daniel is active in the firm’s civil litigation department. His practice is mainly centered around real estate law, landlord-tenant law, construction law, and probate law.

    attorney profile
    Attorney Alexander J. Wisbey

    Alexander J. Wisbey

    Alexander Wisbey comes to the firm with 5 years of experience as a litigator and trial attorney. He has first chaired several jury trials and has extensive experience handling arbitrations, mediations, depositions, and settlements.

    attorney profile
    Attorney Andrew Hata

    Andrew Hata

    Andrew is the head of our Transactional Department and focuses his practice on corporate governance, real estate transactions, commercial contracts, and corporate finance.

    attorney profile
    Attorney Kelley Duggan

    Kelley Duggan

    As an associate at Dickson Frohlich Phillips Burgess, Kelley practices in a wide range of areas, including estate planning, probate, civil litigation, and intellectual property law.

    attorney profile
    Attorney Cambria A. Queen

    Cambria A. Queen

    Cambria is an Associate with Dickson Frohlich Phillips Burgess in the civil litigation department, where she practices primarily real estate and probate law.

    attorney profile
    Attorney George Knight

    George Knight

    As an associate at Dickson Frohlich Phillips Burgess, George is active in the firm’s civil litigation and transactional departments. His practice is mainly centered around business law, real estate law, construction law, employment law, and probate law.

    attorney profile
    Attorney Chris Pierce-Wright

    Chris Pierce-Wright

    Chris comes to Phillips Burgess Tacoma from Seattle, where he served as an associate attorney focused on insurance litigation with Wilson Smith Cochran Dickerson.

    attorney profile
    Attorney Lacey L. Hatch

    Lacey L. Hatch

    Lacey has developed an in-depth knowledge and has successfully advised clients in an array of land use matters, including project review, code drafting and interpretation, as well as a variety of litigation pertinent to land use issues.

    attorney profile
    Attorney Jennifer Yoo

    Jennifer Yoo

    Jennifer is an associate attorney at Dickson Frohlich Phillips Burgess where her current practice focuses on real estate law, contract and commercial disputes, and business law.

    attorney profile
    Attorney Katherine E. Baals

    Katherine E. Baals

    As an associate at Dickson Frohlich Phillips Burgess, Katherine practices in a range of areas, including real estate, construction, business, and civil litigation.

    attorney profile
    Attorney Kenneth Chan

    Kenneth Chan

    As an associate at Dickson Frohlich Phillips Burgess, PLLC, Kenny is active in the firm’s civil litigation and transactional departments. Prior to working at Dickson Frohlich Phillips Burgess, Kenny was an in-house attorney for a Fortune 100 company.

    attorney profile
    Attorney Brian Buske

    Brian Buske

    Following his graduation from Lewis & Clark Law School, Brian garnered valuable client experience working on international compliance and intellectual property issues.

    attorney profile

    testimonials

    I highly recommend Dickson Frohlich Phillips Burgess and if I ever need a lawyer again they will be my first call.

    - Jeremy H.

    I can’t even tell you how much I appreciate this firm! These guys helped me through one of the most challenging legal situations I’ve faced in my life. Their skill and expertise literally saved my business. I’ve dealt with other counsel in the past but the Dickson firm was by far the most competent and tactful counsel I’ve ever received. I would recommend this group to anyone!

    - Keith D.

    It’s a pleasure to work with the guys at Dickson Frohlich Phillips Burgess. One of the first things that stood out to me was how down to earth and friendly everyone at the firm is. I would definitely recommend them.

    - Den L.