What is your Debt To Income Ratio (DTI)  When Applying for a Mortgage Loan  

When applying  for a new mortgage, your DTI ratio will play an important role to help determine how much you can borrow.

This blog post will help you calculate your own DTI. This will be useful to you as well as to help determine if applying for a new loan is the best idea for your budget. 

DTI is a financial term for debt to income ratio.

Your debt to income ratio is calculated using 2 parts: the front end ratio and the back end ratio.

The front end ratio is the amount of your monthly income that will go towards the mortgage and other housing expenses. It is the amount that is left after your income has gone towards these expenses.

Calculate the front-end ratio by doing the following steps:

Add all your total housing expenses, including your mortgage, property taxes, insurance and any HOA dues, and divide it by your gross monthly income.

Multiply  that number by 100 to find the front-end ratio. 

For example,

The monthly mortgage payment is $1,500 including the taxes and insurance. Your HOA dues are $50 per month 

$1,550divided by your gross monthly income 

the multiply that number by 100  - The total is your front end DTI ratio.

If your number is higher than 28%, you may want to wait until you are below the 28% range & be comfortable with your monthly mortgage payment. 

You should also know that the back end ratio compares what portion of your income is needed to cover all of your monthly debts plus your mortgage payments. 

Steps to calculate your own back end to income ratio"

Add up all the monthly bills you have and then make sure to include any other monthly expenses that you have. For example, monthly rent, loan payments, credit card payments, etc.  This will give you a good idea of your total monthly bills.

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Take the total of your bills and divide it by your income before taxes.

Multiply the total by 100 

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This is the total of your back end DTI ratio

Ideally, the total should be below 45% 

A DTI ratio above 45% suggests  that you should consider increasing your savings or reducing your spending to maintain this ratio.

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It is a very important  process to have a pre-qualification with a lender without getting penalized for a credit pull or paying any fees. Speak to your REALTOR® to help you get started with this. A "soft" pull of your credit and information about the maximum that you can qualify for can be done in a matter of a few minutes. Use a pre-qualification with a lender when you are just starting  in the process of buying your home. It should be free and use it as your plan to put you in position to buy a home in the next few months

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It's the biggest purchase of your life, and can assure you that even small mistakes can be costly.  BEWARE, technology changes almost daily and I can help you pinpoint all the homes for sale near your location points. I have access to over 18 million properties from hundreds of locations, including Government  properties, action homes, VA homes, HUD Properties and all available private houses for sale in between.

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