Debt-to-Income ratio (known as DTI) is the backbone to qualification for a home loan. Lenders look to this ratio to determine how much of a mortgage payment along with other debts is permissible to qualify you for a loan. Depending on the loan, a general rule is that lenders will approve a DTI up to 50%.

Not all debts are included in DTI. For example, phone bills, internet, and utility bills are typically not included. Debts that are included are car payments, student loan payments, and credit card payments.

Most of the scrutiny by underwriters is in the calculation of income. If you are salaried or have been in the same job for a couple years, lenders tend to consider this as stable income and will use this income. However, if you are an hourly employee and have only been in your job for a couple months, lenders may consider this as variable income, and will want to see you in the job for 6 months to 1 year prior to using this income. If you are self-employed, lenders will look at the net income on the tax return, not the gross income, to calculate income. If you write off all of your income, there are other loans, such as bank statement loans, where the lender will take a percentage of the deposits on your bank statements over the last year or two, to calculate income. There are other sources of income that can be considered too, such as asset depletion if you have a substantial amount of liquid assets, monthly draws out of your retirement account if you are of retirement age, pension or social security income.

If you are having trouble qualifying for a loan, contact us and we can review your scenario, as we have helped many families calculate their DTI for qualification.