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Afford a Loan

Can I Afford Another Loan?

Will I be able to repay my loan?

These should be the first questions that you ask yourself when deciding whether or not to apply for a loan.

To assess this situation for yourself, you can use the same technique that many credit unions use...your debt to income ratio.

Simply put, this is the total of all your monthly payments divided by your gross income. Most financial institutions consider that you are able to repay your obligations if your debt to income ratio falls within a 36% to 40% range. The remaining 60% of your income goes toward paying your federal and state taxes, utility bills, and other expenses such  as medical, clothing, food and childcare. If these other expenses take up more than 60% of your income, you may not be able to afford the loan even if your lender thinks you can. Keep in mind, the lender does not know what your household expenses are or what it costs to maintain your lifestyle.



What debts do I include? You should include any loan payments that you are responsible for paying. You should include them even if someone else makes the payments. For instance, if you co-signed a loan for your daughter, you are responsible for the payments too. Even if she is making the payments, a lender will count that in your debt to income ratio. If for some reason, she could no longer make those payments, you would be obligated to make them.

What about loans that are automatically deducted from my spouse's paycheck?
If you signed as a borrower on the loan documents, you are legally responsible along with your spouse to pay the loan. You must count it in your debt to income ratio. If your debt ratio is high, being a co-maker may hinder your ability to obtain credit in the future.

What if I am divorced and the court has ordered my spouse to make those loan payments?
The court action does not relieve you of your obligation to repay the loan. You are still legally responsible to make payments. If your spouse does not make the payments, the lender can collect from you. Unless your spouse refinances the loan and removes your name from the documents, you should include this in your debt to income ratio. Remember too, that it will continue to be reported on your credit history as long as your name is on the loan.

Should I count my payments to the electric, phone or cable companies?
Generally, the lender does not count these payments. However, it is a good idea for you to take these into consideration when deciding whether or not you can afford a new loan payment.

I have a lot of credit cards but not all of them have a balance. Will these be counted in my debt to income ratio?
As a rule, if you don't have a balance and have not had one in the last 12-24 months, it will not be counted. However, having a lot of credit card debt or high lines (even if unused) can hinder your ability to obtain a loan. Those credit card lines are available to be used and some lenders do calculate what your debt to income would be if you charged each card to the limit. It is best to close out unused lines and credit cards. One or two credit cards are all the informed borrower should need.

Do I count my spouse's income and debts?
If you are applying for a loan together, you must include your spouse's income and all debts that you and your spouse are either jointly or individually responsible for.

Use the form below to figure your debt to income ratio:
Debts:
Include joint debts in only one column
You

Co-borrower

Total

--------         --------         --------          
Mortgage payment or Rent -------- -------- --------
Mortgage Taxes & Insurance -------- -------- --------
Auto payment -------- -------- --------
Auto payment -------- -------- --------
Student loan payments -------- -------- --------
Credit Card payment -------- -------- --------
Credit Card payment -------- -------- --------
Credit Card payment -------- -------- --------
401(k) Loan payment -------- -------- --------
Other Loan payments -------- -------- --------
Other Loan payments -------- -------- --------
-------- -------- --------
Total Monthly Payments -------- -------- --------
-------- -------- --------
-------- -------- --------
Monthly Income: -------- -------- --------
-------- -------- --------
Wages* -------- -------- --------
Part-time job -------- -------- --------
Social Security -------- -------- --------
Pension -------- -------- --------
Assistance -------- -------- --------
Alimony and/or Child Support -------- -------- --------
Other -------- -------- --------
-------- -------- --------
Total Monthly Income -------- -------- --------
-------- -------- --------
-------- -------- --------

* If your pay is weekly, then multiply your weekly pay by 52, then divide by 12.
* If your pay is biweekly, then multiply your weekly pay by 26, then divide by 12.

Total Debts divided by Total Monthly Income=Debt/Income Ratio.



Central Maine Federal Credit Union

1-207-783-1475
1000 Lisbon Street
Lewiston, ME 04240
Fax: 1-207-777-1914

1-207-783-1475
836 Center Street
Auburn, ME 04210
Fax: 1-207-440-2100

Mailing Address:
P.O. Box 1746
Lewiston, ME 04241-1746

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