Making Mortgages Simple - Your DTI

Are you a qualified home buyer? What you makes you one anyway? That's a fairly loaded question, and once all the details of your financial status are analyzed, there is one glaring factor that shapes the suitability of your residential home mortgage - D.T.I.

Your Debt To Income ratio is the big percentage determined and used to find your qualifying amount. It's a key part of originating a mortgage. Let me tell you how it works...

You have two ratios - a front-end and a back-end. And these two ratios comprise your DTI. It is the percentage of debt you have in proportion to your gross monthly income (monthly income before taxes).

Your front-end ratio is your housing payment only, compared to your income. So, if you make $6,000 per month and your proposed housing/mortgage payment (your new mortgage payment) is $1,500. Your front-end ratio is 25%. Simple enough, right?

Your back-end ratio is your total current debt (paid monthly), which is all debt in your name AND includes your new housing/mortgage payment - compared to your income. So, if you make $6,000 per month and your car payment is $125, your two credit cards have a monthly minimum of $25 each, and your student loan is $150 per month, then you have $325 of monthly debt. Add the mortgage payment of $1,500 to that and your total debt is $1,825. Using $6,000 as income, your back-end ratio is 30%.

Your DTI in this circumstance is 25/30 - and that's a comfortable qualification for a home mortgage. Generally speaking your mortgage can be up around a 45% back-end ratio. So you would be well qualified for this home.

Your DTI is determined through an extensive look at your income and debts. Be prepared to provide pay stubs, a W2, and possible your federal income taxes also. And certainly be prepared to have your credit pulled. Providing your loan officer with this information will make your loan suitability far more accurate.