(photo excerpted from blog.transamerica.com)
For those who are ready to make a home purchase, one of the biggest components a Lender is looking at is your debt to income ratio or DTI.
Your DTI is calculated by adding the total sum of all monthly debt payments including the principal, interest, taxes and insurance; then dividing it by the borrower’s monthly gross income. This is the back end debt to income ration. When the front end debt to income ratio is calculated, you take the monthly payment of your principal, interest, taxes, and insurance, then divide it by the borrowers gross monthly income.
Monthly Debt Payments Include:
- Child Support Payments
- Alimony Payments
- Minimum Student Loan Payments
- Auto Loan Payments
- Minimum Credit Card Payments
- Other Monthly Debt Payments
*Utilities, auto insurance, health insurance, and cell phone payments are not calculated in the debt to income ratio.
According to Gustancho.com, the “2016 FHA Guidelines On Debt To Income Ratio exempts medical collection accounts with outstanding balances and charge off accounts from debt to income calculations. However, this does not hold true with non-medical collection accounts if the borrower has more than $2,000 in total outstanding collections. FHA requires that if the borrower has over $2,000 in outstanding collection accounts that are non-medical, then 5% of the outstanding collection account balance needs to be used in debt to income ratio calculations of the borrower. The borrower does not need to make any payments and FHA does not require the borrower to pay off or make any payment agreement with the creditor and/or collection agency.”
Click here, for an easier way to calculate your debt to income ratio,
This post is just a start to calculating your debt to income ratio. You should always meet with a Mortgage Lender Professional to determine a more accurate debt to income ratio or other financial information.
For more information on purchasing a home, contact the Rob Morrison Team with any home buying/selling needs at (847)212-0966.
“Update On 2016 FHA Guidelines On Debt To Income Ratio.” Gustancho.com. 13, October 2016.
“Debt to Income Ratio Calculator” Zillow.com. 13, October 2016.