What is a debt to income ratio?
It is the share of your income before taxes that goes to monthly debt payments. Add up your monthly debts, divide by your monthly income, and you have your DTI. A mortgage lender uses it to check that a new house payment will fit in your budget.
How do I figure my debt to income ratio for a mortgage?
Add your new house payment to your other monthly debts, like a car loan, student loans and credit card minimums. Divide that total by your monthly income before taxes. That is your total ratio, also called back end. The house payment alone, divided by your income, is your housing ratio, also called front end. This calculator does both.
What is the difference between front end and back end DTI?
Front end counts only the house payment: principal, interest, property tax, home insurance, mortgage insurance and any community fees. Back end counts the house payment plus every other monthly debt. Most loans lean on the back end number.
What is the highest debt to income ratio for a mortgage?
It depends on the loan and the rest of your file. As a lender, the most I see approved is just under 50% on a conventional loan, and on FHA just under 47% for the house payment and just under 57% in all. VA sets no top ratio. It looks at the money left each month after your bills. Those tops take strong credit and savings, so most buyers aim lower.
What debts count in a debt to income ratio?
Debts with a set monthly payment: car loans, student loans, credit card minimums, personal loans, other mortgages, a car lease, and child support or alimony you pay. A loan you co-signed usually counts too. Your new house payment counts. Your rent now does not, since the house payment takes its place.
Do utilities count in my debt to income ratio?
No. Power, water, gas, phone, internet, car insurance, food and gas for the car are living costs, not debts. They do not show on your credit report as loans, so they stay out of the ratio. A lender still wants your budget to cover them.
How do student loans count in DTI?
If your credit report shows a monthly payment above zero, lenders usually use it. If the payment is zero, or the loan is on hold, each loan type has its own rule. On a conventional loan I count half of 1% of the balance each month. That is Freddie Mac's rule, and it is the one I use when student loans are large. FHA also uses half of 1% of the balance when the payment is $0. VA can leave out a loan on hold for at least 12 months after closing. Otherwise VA uses 5% of the balance a year, split by 12, unless your payment is higher or a letter from your loan servicer shows a lower one.
Does a deferred student loan count in my DTI?
Usually yes. A loan on hold still gets a payment in the math, set by the loan type, even though you pay nothing today. VA is the main exception: a loan on hold for at least 12 months after your closing date can be left out.
Does child support count as debt for a mortgage?
Yes. Child support and alimony you pay count as a monthly debt. Conventional loans count them when more than 10 payments are left, and FHA counts them either way. A conventional loan can take alimony off your income instead. Child support you receive can count as income if it will keep coming. VA also counts child care as a monthly cost.
Can debts with only a few payments left be left out?
Often. A car loan or other installment loan with 10 or fewer payments left can usually be left out, unless the payment is big enough to strain your budget. FHA adds two tests: those short debts together must be a small share of your income, and you cannot pay a loan down just to get under 10 payments. A car lease always counts, since a new one usually follows.
How can I lower my debt to income ratio before I buy?
Pay off or pay down a monthly debt, add a co-borrower's income, or pick a smaller house payment. Paying off a small loan can drop your ratio more than paying down a big one, because it removes a whole payment. Try it with the Pay it off buttons above. Ask your lender before you close an account or move money.
Is DTI based on income before or after taxes?
Before taxes. Lenders use your gross pay, the number on your pay stub before taxes, health insurance or retirement come out. Income that is not taxed, like some disability pay, can be counted a little higher to make up for it.
Does a co-borrower help my debt to income ratio?
It can. A co-borrower's income is added to yours, but so are their monthly debts. If they bring more income than debt, the shared ratio drops. Type both incomes and both sets of debts above to see it.
Do USDA and DSCR loans use DTI too?
A USDA loan, for homes in rural areas, checks both the housing ratio and the total ratio, much like FHA. A DSCR loan, used to buy a rental, works another way. It looks at whether the rent covers the house payment, not at your own pay and debts.
Is my DTI the only thing a lender looks at?
No. A lender also looks at your credit, your savings, how steady your income is and the home itself. Strong credit or extra savings can let a lender allow a higher ratio. This page gives an estimate, not a pre-approval or a promise to lend.
Does this calculator save my income or debts?
No. Your income and debts stay on this screen. They are never saved, sent or put in a web address.
