DTI Ratio

DTI, also known as debt to income ratio, is a major factor when becoming qualifed for a mortgage.

50% DTI is usually the most that lenders will lend upon. Exceptions do abound.

Your DTI, or debt to income ratio is the general basis for calculating how much of a home or home loan a consumer can afford. Debt to income ratio is figured by dividing monthly income and monthly bills by each other. The percentage calculated will equal your debt to income ratio.

DTI does not take into account bills like telephone, grocery and other daily living exspense. Keep this in mind when figuring your mortgage payment and how it will affect your finances.

If you think your DTI is too high for most lenders you should consider a "No Ratio" loan. These mortgages require high credit scores and good employment history. Be sure to ask your preferred mortgage professional if a No Rato loan is right for you.

Different loan programs have different debt-to-income guidelines. Government and conventional mortgages have lower DTI requirements than some Alt-A and subprime loans.

Installment debts (like car loans for example) with less than ten payments remaining generally are not included in the DTI calculation.

There are two Debt-To-Income Ratios (DTI) lender banks look at. The "Front DTI" is derived from dividing the housing expenses by gross income. The "Back DTI" is the sum of housing expenses and all installment debt obligations, such as vehicle finance and credit card debt payments, divided by gross income. Lenders are more concerned about the Back DTI than the Front DTI.

A loan program where you are stating your income rather than providing full proof of it will usually have a lower DTI requirement. Again, as has been mentioned before, stated income is designed for those who cannot prove their income and should not be taken as an opportunity to artificially inflate actual levels of income.

» DISCLAIMER: The information contained in this article on 'DTI Ratio' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.