Standard Debt To Income Ratio

By: Michael Stevens - Staff Writer
Published: Apr 26, 2021

Standard Debt To Income Ratio. Lenders refer to the ratio of income and debt as a standard during a mortgage approval process. In fact, most people don’t even know what it means.

Standard Debt To Income Ratio

There are two ratios that, together with the credit score, determine how qualified someone is for a loan. The first, and by far the more important, is debt to income ratio, usually abbreviated DTI. This is a measurement of how easy it will be for you to repay the loan given your current income level.

The debt to income ratio is measured by dividing total monthly mandatory outlays to service debt into your gross monthly income. Yes, due to the fact that the tax code gives you a deduction for mortgage interest, you qualify based upon your gross income. This ratio is broken into two discrete measurements, called front end ratio and back end ratio, for underwriting standards.

The front end ratio is the payments upon the proposed loan only (i.e. principal and interest), whereas the back end ratio adds in all debt service: credit cards, installment loans, finance obligations, student loans, alimony and child support, and property taxes and homeowner’s insurance on the home as well. With the current paranoid lending environment, the front end ratio has become significant where it was formerly almost ignored.

As to what gets counted, the answer is simple. The minimum monthly payment on any given debt is what gets counted. It doesn’t matter if you’re paying $500 per month, if the minimum payment is $60, that’s what will be counted.


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