Morgage Debt to Income Ratio - What's the Formula? What's Morgage DTI?
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The 'Front End' ratio refers to the percentage of income that is used when paying off a morgage's principal and interest, property taxes, homeowner's and morgage insurance, and any Homeowner's Association Dues.
The 'Back End' ratio refers to the percentage of gross income that is used to pay all recurring monthly debts plus the 'Front End'. So this would include debts such as car payments, credit card payments, monthly installment loans, child support payments and so on.
Most small banks and local lenders have very tight 'DTI' guidelines that require morgage ratios of 36%. However, larger lenders often have programs that permit 'Back End' ratios of up to 45%. If your DTI is higher then this you should absolutely utilize the services of a good Broker because they have access to Wholesale Rates for programs that allow up to 50% on the 'Back End'---and they have access to Subprime Loans that can go significantly beyond 50%. Additionally, they will be able to advise you on how to use certain programs (such as Stated Income, NINA, and No Doc) to bypass a Debt to Income Morgage ratio that is too high for normal guidelines.
Other Important Morgage Terms
Deed of Trust - Document used in some states in place of a mortgage. In such an arrangement, the borrower transfers legal title to a trustee who holds the property in trust as security for the repayment of the debt.
Default - Failure to meet legal obligations in a contract, such as the failure to make the monthly mortgage payment.
Deferred Interest - Unpaid interest added to the loan balance. This is common in a negative amortized or option arm loan program. The minimum payment is less than the interest charges. The interest that is not paid is added to the balance.
Delinquency - Failure to make payments on time.
"To say that I appreciate you and your company's help would be a huge understatement..."
Morgage 'Debt to Income' Ratio - What is it?
A Morgage 'Debt to Income Ratio' is a mathematical formula used to assess someone's ability to make payments on a loan. It is derived from taking a borrower's gross (pre-tax) income and dividing it by their total debt load. It is usually expressed as two numbers: the 'Front End' & the 'Back End'.The 'Front End' ratio refers to the percentage of income that is used when paying off a morgage's principal and interest, property taxes, homeowner's and morgage insurance, and any Homeowner's Association Dues.
The 'Back End' ratio refers to the percentage of gross income that is used to pay all recurring monthly debts plus the 'Front End'. So this would include debts such as car payments, credit card payments, monthly installment loans, child support payments and so on.
Most small banks and local lenders have very tight 'DTI' guidelines that require morgage ratios of 36%. However, larger lenders often have programs that permit 'Back End' ratios of up to 45%. If your DTI is higher then this you should absolutely utilize the services of a good Broker because they have access to Wholesale Rates for programs that allow up to 50% on the 'Back End'---and they have access to Subprime Loans that can go significantly beyond 50%. Additionally, they will be able to advise you on how to use certain programs (such as Stated Income, NINA, and No Doc) to bypass a Debt to Income Morgage ratio that is too high for normal guidelines.
Other Important Morgage Terms
Deed of Trust - Document used in some states in place of a mortgage. In such an arrangement, the borrower transfers legal title to a trustee who holds the property in trust as security for the repayment of the debt.
Default - Failure to meet legal obligations in a contract, such as the failure to make the monthly mortgage payment.
Deferred Interest - Unpaid interest added to the loan balance. This is common in a negative amortized or option arm loan program. The minimum payment is less than the interest charges. The interest that is not paid is added to the balance.
Delinquency - Failure to make payments on time.