Debt to Income Ratio Calculator
Debt to Income Ratio / DTI Calculator - What are your mortgage Debt to Income Ratios?
- Calculate your Debt to income ratios or DTI used by mortgage lenders to determine your maximum loan amount. There are two main debt to income ratio forumlas; a) front-end DTI - which is your
housing expense / income and b) back-end DTI - which is housing + monthly liabilities
/ income.
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 Ratio Calculator Instructions
Step 1: Enter Gross Monthly Income
Step 2: Enter Minimum Monthly Liabilities
Step 3: Enter PITI Mortgage Payment / Rent Payment
Click "Calculate my Debt to Income Ratio"
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Debt to Income Ratio Definition
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.
Two Types of Debt to Income Ratios
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.
How Debt to Income Ratios Affect Mortgage Qualifying
Mortgage lenders use the debt to income ratio calculation to determine the maximum
loan amount a borrower can obtain. 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.
Recommeded Debt to Income Ratios
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.
High Debt to Income Ratio Solutions
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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