Debt-to-Income Ratio

Debt-to-Income Ratio

A debt-to-income (DTI) ratio is a tool we use to make sure mortgage borrowers can afford their mortgage payments, along with their other obligations. It is a good idea to calculate your DTI ratio before you apply for a mortgage, as we have a maximum allowed ratio. Your DTI ratio includes many debts you may not consider when you are deciding how much mortgage you can afford, and it will consider only your gross income.

There are two types of debt-to-income ratios to understand: the front-end ratio and the back-end ratio. Here is what you should know.

Debt to Income

What is Included in Your DTI Ratio?

Your DTI ratio will consider only your gross income, which means pre-tax salary, along with other income, such as a pension or rental income. You can determine your gross monthly income by dividing your annual income by 12.

The ratio will include fixed, monthly debt payments that would appear on your credit report, not expenses like utilities, clothing or food.

Debt to Income Ratio

Your debt-to-income ratio includes:

  • Housing costs
  • Minimum monthly credit card payments
  • Personal loan payments
  • Alimony or child support
  • Car loan payments
  • Home equity loan payments
  • Student loan payments
Front End Ratios

What are Front-End and Back-End Ratios?

We will first look at your front-end ratio, which considers your monthly gross income compared to your proposed PITI payment, or your principal, interest, property taxes and homeowners insurance/mortgage insurance. This ratio will be used to help determine how much you can comfortably pay.

Next, we will look at your back-end ratio, which includes the monthly debt obligations listed above.

Back End Ratio

What Lenders Want to See with Your Debt-to-Income Ratio

We want your front-end ratio to be no more than 28 percent, while your back-end ratio (which includes credit card payments and other debts) should not exceed 36 percent. We may be willing to exceed these limits slightly, if you have excellent credit. If you get a government-backed mortgage, like a VA or FHA loan, guidelines are usually looser. You can have a front-end ratio of up to 29 percent and a back-end ratio of 41 percent with an FHA loan.

For your loan to be considered a Qualified Mortgage under the new mortgage rules of 2014, your DTI ratio cannot be higher than 43 percent.

Qualified Mortgage

Contact Us Today

Mortgage Investors Group, based in Tennessee, offers residential financing in a number of states in the southeast, See MIG Service Areas. Terms and conditions to apply to home financing. We want to share with you the loan terms vary based on several characteristics and your financial profile. These include but are not limited to loan program, loan purpose, occupancy, credit history, credit score, assets, and other criteria per loan type. The repayment terms and interest rate may vary from time to time. The terms represented here are based on certain assumptions outlined below and/or noted on the loan outline page. Additional details concerning privacy, program disclosures, licensing specifics may be found at Legal Information.

MIG Loan Officers will help gather the information needed for an individual assessment to provide home financing which matches the loan characteristics with your home financing needs based on your financial profile, when you are ready to begin a full loan application. For estimates and general information before that step, the basis for which the mortgage financing information are as follows:
  • Rates are subject to change at any time.
  • Rate locks are available at current terms for 30 to 180 days based on program type, credit profile, property location, etc. which will affect the available rate and term.
  • Payments will vary based on program selection, current rates, property location, etc.
  • Not all programs are available in all states.
  • Some loan programs may not be available to first time home buyers.
  • Terms and conditions apply, which may include restrictions or limits per loan program.
  • Information is generally based on primary residence occupancy with no cash out when refinancing.
  • Unless otherwise stated, terms shown are estimates based in part on credit score of 700 or higher; owner occupancy, escrow account is established for taxes and insurance(s); debt-to-income ratio no higher than 43.0%; PMI applies to conventional loan programs over 80.0% LTV; VA,FHA & RD require insuring fees included in loan and/or payment; fixed rate, 30 year term.

An MIG Loan Officer is available to help with your financial details to determine which characteristics apply to your situation for a personalized look into which loan program best fits your home financing needs. Please use the Find a Loan Officer link or reach out to Mortgage Investors Group at 800-489-8910. Equal Housing Lender 1.2020