Debt to Income (DTI) Ratio Calculation

How to qualify potential home buyers using debt to income DTI calculation. This is a great time saving tips for real estate agents, realtors.

Before starting your car engine and hitting the road for showings, Agents should know if potential buyers are qualified for specific loan amount in case they obtain financing.  One of the factors that lenders look at when qualifying borrowers is debt to income ratio or DTI.  In short, DTI ratio is the amount of debts dividing by one’s incomes.

As you may have guessed, lenders like DTI to be low.  For conventional loans, ideal DTI is below 43%. FHA loans may be stretched up to 55%. 

When qualifying borrowers, agents need to know how to compute Debt to income ratio.  Here is how:

Add up all of borrowers monthly debt obligations (recurring debts)

  • Mortgages (principal, interest, taxes and home insurance)
  • home equity loan payments HELOC
  • Car loans
  • Student loans
  • Minimum monthly credit card payments
  • Other loan payments
  • Do not include anything like utilites, phones, dining, traveling, grocery shopping, or other cash expenses.

    Add up all sources of income

  • Paystubs
  • Consulting work – 1099
  • Alimony
  • Social Security Benefits
  • Dividends and or royalty
  • Other document-able incomes
  • Now divide the total debt by total income. This should be your DTI.

    PS:  In some cases, DTI for conventional can be up to 49%.  Ask me how.

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