Debt-to-income ratio (DTI) calculation is a very important part of the loan qualification process. FHA home loans happen to allow the highest DTI of any home loan available today. For example, FHA home loans will generally allow a borrower to go up to a 55% DTI with only 3.5% down payment. Conventional home loans with anything less than 20% down with have a max DTI of 45%.
Here is how you calculation your debt-to-income ratio:
- First add up all of your debt. This only includes debt that will show up on your credit such as car payments, student loan payments, and credit cards. Let’s say you have a $300/mo car payment, $200/mo in student loans and $250/mo in credit cards. That is $750/mo total in monthly debt obligation.
- Second calculate your total proposed housing payment. This includes mortgage + property taxes + home insurance + mortgage insurance + hoa dues (if you have them). Let’s say for this example all of this adds up to $2,750/mo.
- Take you total other debt of $750 + your total housing payment of $2,750 and you get $3,500/mo total debt.
- Next calculate the total monthly income of all borrowers on the loan. Let’s just say this is $120,000 for purposes of this loan. That would be $10,000 a month.
- Lastly, take your total debt of $3,500 and divide by your monthly income of $10,000 and you get a 35% debt-to-income ratio. This is well below the FHA limit of 55%.
So I hope this makes it easy for you to calculate your debt-to-income ratio. Don’t hesitate to call us or email if you have questions about calculating yours.
Many times borrowers will find when applying for a home loan that they are above the required debt-to-income ratio. A common way to bring your debt-to-income ratios down are to pay off credit or loans that you may have to qualify for the loan or to by a lower priced house. Another option with a FHA loan is you can get a non-occupant co-borrower. This is often a relative that has good income and credit to be a co-borrower but does not have to live in the property.