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Mortgage Info > Mortgage Calculators > Debt to Income Ratio's |
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## Debt to Income Ratio Calculator
The lower your debt to income ratio the better. The recommended debt to income ratios are 28 / 36. Generally you do not want your back-end DTI to exceed 42% or you will have difficulty qualifying for a loan. Use this debt to income ratio calculator to calculate your current debt to income ratios just like mortgage lenders. Learn more about debt to income ratios below.
Debt to Income or DTI is defined as the total percentage of a consumers gross monthly income that goes towards paying monthly consumer debt. Included in the debt calculation are monthly rent or current PITI mortgage payments, car payments (both purchase or lease payments), credit card payments, loan payments, legal liabilities such as tax payments, child support, alimony and any other monthly payments that are reported on a credit report. Some items not calculated in your DTI ratios are insurance, groceries, utilities, entertainment and generally any monthly expenses not reported on your consumer credit report.
There are two main DTI ratio calculations used by mortgage lenders for mortgage qualifying. They are front-end debt to income ratio and back end debt to income ratio. **Front-end DTI Ratio**- this debt to income calculation is your monthly housing expense divided by your gross monthly income will provide your front-end DTI percentage.
**Back-end DTI Ratio**- calculate your back-end debt to income by adding all your minimum monthly payments and your current housing expense and divided by gross monthly income.
Mortgage lenders use the debt to income ratio calculation to determine the maximum loan amount a borrower can obtain and how much house they can afford. The primary reason the DTI ratio is used is to insure a borrower in not over their head with payments and can truly afford the home they are purchasing. Mortgage qualifying is based on gross monthly income versus net income (after tax income) so mortgage lenders have recommended debt to income ratios to take into consideration taxes and other living expenses and leave enough net monthly income to put money aways in savings. Historically, borrowers with high debt to income ratios eventually fall behind on their mortgage payments and may end up losing their homes to foreclosure, conversely the lower the debt to income the smaller the chance of falling behind on your mortgage. This is the primary reason mortgage underwriting will use the DTI as a main factor of qualifying for a mortgage is to limit minimize the chances of a borrower losing a home to foreclosure.
Each type of mortgage loan program has specific guidelines and requirements for debt to income ratios. Generally there is no mortgage lenders who will fund a mortgage loan if your debt to income ratio is over 55% of your gross income. The reason is simply because because a borrower will not have enough money to make all payments at the end of each month once taxes are deducted. If your DTI is 55% of your gross income and your taxes are another 35% of your gross income that only leaves about 10% of your income to pay for food, clothing, utilities, gas etc. Following are some of the recommened debt to income ratio guidelines for the most common types of mortgage loan programs: - Conforming / conventional mortgage debt to income ratio are 28/36
- FHA loan debt to income ratios are 28/41
- VA loan debt to income ratios are 41/41
Under certain situations you maybe able to obtain a higher a mortgage with higher debt to income ratio that 41% assuming you have compesating factors like; perfect credit with high credit scores, lots of money in the bank in for form of reserves or low loan to value ratios.
If you debt to income ratios are above 55% you should aggressively pay down you monthly obiligations. If you are unable to paydown your monthly debt and own a home and have a low loan to value, you maybe able to complete a cash-out refinance to consolidate your debt. If you do not have equity, you may need to look into a debt relief program. Debt to Income Ratio Calculator Disclosure* - The information provided on or through this site is for purposes of general consumer education only and is not intended as a substitute for advice from a qualified professional, such as, but not limited to, a lawyer, mortgage broker, accountant, investment advisor, insurance broker, financial planner, real estate agent or home inspector. We can not and do not guarantee the accuracy or the applicability of this information to your circumstances. We encourage you to seek personalized advice from qualified professionals regarding all personal finance and real estate issues.
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