How to Calculate Mortgage Debt to Income Ratio

2010 February 8

Are you eligible for a mortgage loan?

Mortgage Lenders use a Debt-to-Income ratio (DTI) to determine qualification of borrowers for a loan.

Debt-to-income ratio is the percentage of a borrower’s monthly gross income that goes toward paying debts. More accurately, DTI can include certain taxes, fees, and insurance premiums.

Debt-to-income ratio is expressed using the notation x/y in percentages.

x, front ratio, indicates the percentage of income that goes toward housing costs. For renters, the x ratio is rent amount. For homeowners, the x ratio is PITI (principal, interest, taxes, and insurance).

y, back ratio, indicates the percentage of income that goes toward paying all recurring debt payments. Including housing costs and debts such as credit card payments, car loan payments, student loan payments, child support payments, alimony payments, and legal judgments.

In order to qualify for conventional mortgage loans, lenders require a debt-to-income ratio of 28/36:

Annual Gross Income = $60,000 / 12 = $5,000 per month income

$5,000 * 0.28 = $1,400 allowed for housing expense
$5,000 * 0.36 = $1,800 allowed for housing expense plus recurring debt

Conforming Loans Conventional financing limits are typically 28/36. FHA limits are typically 31/43.

Nonconforming Loans Nonconforming loans have a limit of 55% DTI.

Calculating Your Debt to Income Ratio

Let’s take the following example for qualifying a conventional mortgage loan, 28/36.

Monthly Total Debt Payments:
$2,000 = mortgage (PITI) or rent
$500 = credit cards
$800 = car loan
$700 = other loans

$4,000 Total monthly debt payments

Annual Gross Income $240,000:
$15,000 = monthly salary
$5,000 = other monthly income

$20,000 Total monthly gross income

Debt to Income Ratio = $4,000 / $20,000 = 20%

Your DTI of 20% is well within the 36% ratio to qualify for a mortgage loan.

Jumbo Mortgage Delinquencies Rise to 9.6%
Mortgage Rates on 30-Year Home Loans Rise to 5.01%

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