Your debt-to-income ratio (DTI) compares how much you owe each month to how much you earn. Specifically, it's the percentage of your gross monthly income (before taxes) that goes towards payments for rent, mortgage, credit cards, or other debt.
Which debts? Debts include what people call “good” debt—like your mortgage—and what is considered “bad” debt—like the balance on a credit card you used for a trip. Your total debts should include your car loan payment, your 36-month fridge loan payment, etc.
No matter the timeframe, your mortgage underwriter will break down the fees into monthly costs to help calculate your debt-to-income ratio (DTI). This is a comparison of your monthly debt responsibilities—including property taxes, homeowners insurance, and HOA fees—and your monthly income.
Are all of my monthly bills considered debt? No. Everyday expenses like groceries, utilities, cell phone bills, cable bills, car insurance, and health insurance are not factored into the calculation.
It does not include health insurance, auto insurance, gas, utilities, cell phone, cable, groceries, or other non-recurring life expenses. The debts evaluated are: Any/all car, credit card, student, mortgage and/or other installment loan payments.
The following payments should not be included: Monthly utilities, like water, garbage, electricity or gas bills. Car Insurance expenses. Cable bills.
Many of your monthly bills aren't included in your debt-to-income ratio because they're not debts. These typically include common household expenses such as: Utilities (garbage, electricity, cell phone/landline, gas, water) Cable and internet.
Your DTI, or debt-to-income ratio, is based on two numbers: Your total recurring monthly debt payments, including student loans, minimum credit card payments, auto loans, child support, alimony, etc. This does not include any non-debt related payments such as rent, groceries, entertainment, utilities, etc.
List your monthly debt payments. Make a list of every outstanding loan and the amount you must pay each month. Student loans and car loans count as debt. So do credit cards, even if you always pay the balance in full.
FHA loans for higher DTI
FHA loans are known for being more lenient with credit and DTI requirements. With a good credit score (580 or higher), you might qualify for an FHA loan with a DTI ratio of up to 50%. This makes FHA loans a popular choice for borrowers with good credit but high debt-to-income ratios.
First is the front-end DTI ratio, which measures how much of your gross monthly income will be used on your monthly mortgage payment, including property taxes, mortgage insurance and homeowners insurance.
If your monthly income is $2,500, your DTI ratio would be 64 percent, which might be too high to qualify for some credit cards. With an income of roughly $3,700 and the same debt, however, you'd have a DTI ratio of 43 percent and would have better chances of qualifying for a credit card.
Your DTI ratio compares how much you owe with how much you earn in a given month. It typically includes monthly debt payments such as rent, mortgage, credit cards, car payments, and other debt. Include any pre-tax and non-taxable income that you want considered in the results.
A utility bill is a monthly payment due for essential services. Public utilities include electricity, water, and natural gas, waste management, recycling, and wastewater. Although some may not think of them as essential utilities, bills such as landline, cell phone and Internet services are also considered utilities.
Auto loans can be good or bad debt. Some auto loans may carry a high interest rate, depending on factors including your credit scores and the type and amount of the loan.
Your debt-to-income ratio does not factor in your monthly rent payments, any medical debt that you might owe, your cable bill, your cell phone bill, utilities, car insurance or health insurance.
Front-end DTI focuses on your proposed monthly mortgage payment, including taxes and insurance. This amount is divided by your gross monthly income to get your ratio. The back-end DTI takes into account your current monthly debts in addition to your proposed monthly mortgage.
Don't include non-debt expenses like utilities, insurance or food. Divide that number by your gross monthly income, then multiply that number by 100 to get the percentage used as your DTI ratio.
Under the new qualified mortgage rules, your monthly debts—including your auto loan—cannot exceed 43% of what you bring home. If your auto loan pushes you above the limit, you may not qualify for a home loan.
1) Add up the amount you pay each month for debt and recurring financial obligations (such as credit cards, car loans and leases, and student loans). Don't include your rental payment, or other monthly expenses that aren't debts (such as phone and electric bills).
Is a mortgage considered debt? A mortgage is a type of secured debt because the real estate you're financing is used as collateral against the loan. Non-mortgage debt is any other type of debt that's not secured by real estate, such as personal loans, student loans, auto loans and credit cards.
35% or less: Looking Good - Relative to your income, your debt is at a manageable level. You most likely have money left over for saving or spending after you've paid your bills. Lenders generally view a lower DTI as favorable.