What’s My Debt-to-Income (DTI) Ratio?
Debt-to-Income (DTI) is one of the many new mortgage related terms many First-Time Home Buyers will get used to hearing.
DTI is a component of the mortgage approval process that measures a borrower’s Gross Monthly Income compared to their credit payments and other monthly liabilities.
Debt-to-Income Ratios are designed to give guidance on acceptable levels of debt allowed by particular lenders or programs.
There are actually two different Debt-to-Income Ratios that underwriters will review in order to determine if a borrower’s monthly income is sufficient to cover the responsibility of a mortgage according to the particular lender / mortgage program guidelines.
Most loan programs allow for a Total DTI of 43% and a Housing DTI of 31%.
Two Types of DTI Ratios:
a) Front End or Housing Ratio:
- Should be 28-31% of your gross income
- Divide the estimated monthly mortgage payment by the gross monthly income
b) Back End or Total Debt Ratio:
- Should be less than 43% of your gross monthly income
- Divide the estimated house payment plus all consumer debt by the gross monthly income
Remember, the DTI Ratios are based on gross income before taxes. Lenders also prefer to use W2′s or tax returns to verify income and employment.
However, the adjusted gross income is used to calculate DTI for self-employed borrowers on most loan programs. Since there is room for interpretation on these guidelines, it’s important to review your personal income / employment scenario in detail with your trusted mortgage professional to make sure everything fits within the guidelines.
Michelle Guth
Diversified Mortgage Group
Mortgage Consultant
Direct: 208-853-7878
Michelle@dmgloans.com
ID MBL-5696 / NMLS # 36853 / 36852 / 1850
www.idahohomegroup.com
_________________________________
Related Articles – Mortgage Approval Process:
- Basic Mortgage Terms
- How Much Can I Afford?
- Common Documents Required For A Mortgage Pre-Approval
- Top 8 Questions To Ask Your Lender During Application Process
- What’s The Difference Between An Investment Property, Second Home and Primary Residence?
- Seven Items Real Estate Agents Need To Know About Your Mortgage Approval
March 28, 2010 by Michelle Guth · Leave a Comment
Related Posts
- Seven Things Your Boise Idaho Real Estate Agent Should Know About Your Mortgage Approval
- Boise Idaho Home Buyers : Ten Credit Do’s and Don’ts To Bear In Mind Prior To Getting Your Mortgage Loan
- Boise Idaho Home Buyer asks “Do I Need To Sell My Home Before I Can Qualify For A New Mortgage On Another Property?”
- What Do Idaho Appraisers Look For When Determining A Property’s Value?
- Where Does My Earnest Money Go When Purchasing Boise Idaho Real Estate?
Michelle Guth is an experienced Idaho Mortgage Lender, Broker, & Banker helping home buyers avoid or overcome obstacles to home ownership and better understanding their down payment assistance & 
