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.
Back-End Ratio: Considers all debt payments, including mortgage expenses, credit cards and loans, in comparison to your monthly income. Lenders prefer a front-end ratio of 28% or less for conventional loans and 31% or less for Federal Housing Association (FHA) loans.
Specifically, it's the percentage of your gross monthly income (before taxes) that goes towards payments for rent, mortgage, credit cards, or other debt.
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.
What payments should not be included in debt-to-income ratio? Expand. The following payments should not be included: Monthly utilities, like water, garbage, electricity or gas bills.
Be Aware of Your Debt-to-Income Ratio
Under the new rules, healthcare-related bills under $500 will be removed from your report, as well as all paid collections. You'll also have 12 months to address any medical debt in collections before it can have a negative effect on your payment history.
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.
If you're currently leasing an apartment, your monthly rent is typically included in your debt-to-income ratio. Your housing payment is considered a necessary expense, even if you rent.
Your debt-to-income ratio shows the percentage of your monthly income that will go towards your fixed housing expenses (and other fixed liabilities). Your fixed housing expenses include your mortgage and your maintenance on the co-op you are purchasing as well as on any other properties you own.
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.
The debt-to-income ratio (DTI) measures a borrower's debt repayment capacity as per their gross monthly income. In simple terms, DTI is the gross of all monthly debt payments divided by the gross monthly income, calculated as a percentage.
Bad debt may include loans to clients and suppliers, credit sales to customers, and business loan guarantees. However, deductible bad debt does not typically include unpaid rents, salaries, or fees.
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.
Front-End DTI vs.
Conversely, the back-end debt-to-income ratio represents the percentage of your gross monthly income that goes to all debt payments. In other words, the back-end DTI includes your total housing expenses plus all other monthly debt payments, such as: Installment loans, such as auto or personal loans.
Leases, loans and your credit
Car leases or loans are liabilities, and your payments are included in monthly debt ratios. If you apply for a mortgage, student loan, or credit card while making car payments, you may qualify for a lower amount than if you didn't have them.
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.
Mortgages are seen as “good debt” by creditors. Since the mortgage debt is secured by the value of your house, lenders see your ability to maintain mortgage payments as a sign of responsible credit use. They also see home ownership, even partial ownership, as a sign of financial stability.
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.
If you're getting a mortgage, your DTI ratio calculation will use the actual monthly payment amount for certain types of debt, such as: Mortgage payment. Auto loans.
Key takeaways. Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
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.
Generally no. While medical debt under $500 is not reportable to credit agencies as of July 2023, that does not extend to dental debt. However, if the bill is from a dental emergency or ER visit, and depending on the operating procedures of the practice in question, it might qualify for this exception.
Your mortgage lender might ask for a statement that shows your current address, such as a utility bill or a lease agreement. This helps verify that you truly live where you say you do and have a history of stability.