If you’ve ever seen the term “DTI” on a mortgage or realtor search and wondered what exactly it meant, fear not!  DTI stands to debt-to-income ratio, and it’s not as complicated as it might sound. Here’s a simple guide to what it is, how it works, and why it’s helpful for you!

What is a debt to income ratio?

Your debt-to-income ratio takes your monthly debt (payments) out of your gross monthly income, generally before taxes are taken out. Lenders look at this to evaluate whether you can actually handle adding another monthly payment on your budget.

So if you’d like to find your DTI, it doesn’t have to be too complicated. Add up all your monthly payments, and divide them by your gross monthly income.  This will give you your overall debt-to-income ratio, which industry standards recommend be under 43 percent total.

Here are some other terms you may have seen tossed about referring to DTI: front-end and back-end.

  • The front-end DTI ratio is sometimes called your mortgage-to-income ratio. It shows what percentage of your income would go to your housing should you get the loan, including your mortgage payment, insurance and taxes.  Generally lenders will make sure your percentage is within standard limits before approving you for a loan,
  • Back-end DTI tracks all monthly payments, including your credit card bill, car loans, etc. It looks at your finances even beyond your housing costs to see if your other debt obligations make it unlikely for you to be able to make your payments on a mortgage.
What next?

Remember that although you can calculate this on your own, your lender will be evaluating multiple aspects of your financial report, including your credit score and jobs held in the last 2 years – not just your DTI.  However, figuring out your DTI can help you make adjustments to your expenditures in preparation for applying for a mortgage, so it’s a handy tool to have around!

Even if you’re not exactly where you want to be financially, give us a call. We’re a direct lender, which means we make our own decisions with our own money, often allowing us to get you a better rate, faster and with less hassle – because you get to talk directly to us, no middle man required.



The Christian Mortgage Mom