Types of DTI ratios
There are two different ratios relating to DTI. There is front end and back end. Different types of loans look at different ratios and have different requirements.
Front end includes your monthly debt payments divided by your gross monthly income.
Back end includes your mortgage payment divided gross monthly income.
Debt-to-Income limits differ depending on the loan. Typically, between 29-50% is the average ratio to be approved.
How do you calculate your DTI?
Start by adding up your monthly debt payments and your monthly income. Use the example below to guide you.
Gross Monthly Income: $4,000
Monthly Debt: $400 (includes ALL minimum debt payments)
400/4000 = .1 or 10%
So, your DTI would be 10%.
What is an average DTI?
The lower the percentage, the higher changes you have of being approved. On average, 36% is a good starting point.
Have questions regarding your debt-to-income ratio or want to see what you qualify for? Feel free to reach out and we can guide you through the home buying process.