As far as underwriters are concerned, the Back DTI (total monthly obligations divided by total monthly income) carries more weight than the Front DTI (monthly housing expenses divided by total monthly income). In fact, some lender banks have disregarded the Front Debt-to-Income ratio altogether and look only at the Back DTI.

Although many lenders have programs that allow up to a 55% debt to income ratios, it is not always in the best route to take. The borrower should consider what his or her potential for an increase or decrease in income could be over several years. Discussing your short and long term goals with your mortgage broker will allow them to find a loan program that is in your best interest.

Debt to Income Ratio

Your debt to income ratio is simply a way of determining how much money is available for your monthly mortgage payment after all your other recurring debt obligations are met.

Debt limit

There is generally a debt limit associated with each type of loan, such as a 28/36 qualifying ratio for a conventional loan. These qualifying ratios are guidelines. An excellent credit history can help you qualify for a mortgage loan even if your debt load is over and above the limit.

Understanding the qualifying ratio

Typically conventional loans have a qualifying ratio of 28/36. Usually an FHA loan will allow for a higher debt load, reflected in a higher (29/41) qualifying ratio.

The first number in a qualifying ratio is the maximum percentage of your gross monthly income that can be applied to housing (including loan principal and interest, private mortgage insurance, hazard insurance, property taxes and homeowner's association dues).

The second number is the maximum percentage of your gross monthly income that can be applied to housing expenses and recurring debt. Recurring debt includes things like car loans, child support and monthly credit card payments.

For example:

With a 28/36 qualifying ratio:

Gross monthly income of $3,500 x .28 = $980 can be applied to housing
Gross monthly income of $3,500 x .36 = $1,260 can be applied to recurring debt plus housing expenses

With a 29/41 qualifying ratio:

Gross monthly income of $3,500 x .29 = $1,015 can be applied to housing
Gross monthly income of $3,500 x .41 = $1,435 can be applied to recurring debt plus housing expenses
Simply guidelines

Remember these are just guidelines. We’d be happy to pre-qualify you to determine how large a mortgage loan you can afford. We look forward to helping you buy your dream home.

This ratio, also known as "DTI", is very important in the eyes of each Lender. Some lenders will allow your DTI to be as high as 55% making it even easier to qualify for a mortgage.

Other lenders will want to see your DTI at 40% or below and usually conforming loans will have this stipulation. Many niche programs do allow for higher DTI ratios. If you are currently looking for a loan you might want to cosider consulting a mortgage broker to find out what percentage your DTI is and what programs are available.