Debt to Income (DTI) Ratio Calculation

One of the factors that lenders look at when qualifying borrowers is debt to income ratio called DTI.  In short, DTI ratio is the amount of debts dividing by borrower’s incomes.

As you may have guessed, lenders like DTI to be low.  For conventional loans, max DTI has recently increased since July 2017 from 45% to 50%. FHA loans may be stretched up to 55%.

Here is how the DTI is compute:

Add up all of borrowers monthly debt obligations (recurring debts)

  • Mortgages (principal, interest, taxes and home insurance)
  • home equity loan payments HELOC
  • Car loans
  • Student loans
  • Minimum monthly credit card payments
  • Other loan payments

Do not include anything like utilites, phones, dining, traveling, grocery shopping, or other cash expenses.

Add up all sources of income

  • Paystubs
  • Consulting work – 1099
  • Alimony
  • Social Security Benefits
  • Dividends and or royalty
  • Other document-able incomes

Now divide the total debt by total income. This should be your DTI.

Categories: Agents, Home Buyers, Mortgages