What is DTI & how is it evaluated?

[Jeff B.]

Debt-to-Income Ratios are the heart of lending, after all, the new loan needs to have a hope of being paid from income.

Notice, ratios, plural. There are two and they indicate different risks to the lender, Front-End and Back-End.

The front-end debt ratio is commonly known as the mortgage-to-income ratio. This has been a benchmark for ages and the standard was 25%. Given the economy in the last 10-15 years, various lenders now allow ratios like 30, 40 and 50% depending upon the local market.

The back-end ratio is otherwise known as your debt-to-income ratio - - just how liquid are you?  Add you payment(s) for mortgages, all your credit cards, utilities - - anything that is a repeating expense, and divide by all your net income (aka actual take home).

FHA has guidelines and most lender underwriters will comply with them.

[Michael Bowser]

Hello J Beard,

There is a ton of information on the web about DTI but here is a quick rundown that should help you out.

Mortgage DTI: If you make $40K a year, if your lender maxes out at 43% then you will do 40K*.43/12= $1,433 is the max amount your DTI can be.

Note: That is including Car Payments, CC Payments, Extra.

When DTI is calculated it includes all the Mandatory expenses that you are obligated to pay.

99% of those will show up on your credit report.

So with that being said if you have a $300 car payment and $100 a month in CC your new Max mortgage payment would be 1,433-400=$1,033. Which would be around a est. (200K house).

Hope this help.