Step 1: Your debt-to-income ratio is calculated by adding up all your monthly debt payments and dividing them by your gross monthly income.
Add up your monthly bills which may include:
- Monthly mortgage principal & interest payment (For all properties owned)
- Monthly private mortgage insurance payment (For all properties owned)
- Monthly escrow payment for home insurance and property taxes (For all properties owned)
- Monthly HOA fee (For all properties owned; if applicable)
- Monthly alimony or child support payments
- Student loan payments
- Income-Based-Repayment (IBR) plans ONLY allowed on Conventional financing (e.g. Fannie Mae, Freddie Mac).
- IBR plans not allowed on FHA financing. FHA requires a fully amortized payment or 1% of balance used to “calculate” a payment.
- Auto loan payments
- Credit card monthly payments (use the minimum payment)
- Monthly payments for all other properties owned
- Other debts
CAUTION: DTI ratios are extremely sensitive, and missing one important thing could be the difference between approval and denial.
Note: Expenses like groceries, utilities, gas, and your taxes generally are not included
Step 2: Divide the total by your gross monthly income, which is your income before taxes.
Step 3: The result is your DTI, which will be in the form of a percentage. The lower the DTI; the less risky you are to lenders, and the greater your chances of approval.