# What Is Included In The Debt-To-Income Ratios?

I wrote a blog  "Not Everything In Debt-To-Income Ratios Are The Same In Loan Programs"  earlier this week pointing out that the Consumer Financial Protection Bureau (CFPB) QM Rule for a flat Total Debt-To-Income Ratio of 43% on all Loan Programs was not a wise or practical thing to do.  In the blog I gave examples of what makes up the Housing Ratio and Total-Debt-To-Income Ratios (DTI)) for each Loan Program, however, the way I presented it was a little difficult to follow.  So Brenda Mullen, in her comment on my blog, asked if I could write another blog just on What Is Included In The Debt-To-Income Ratios?

A Debt-To-Income Ratios is the Percentage of the Borrower(s) Monthly Debt versus the Monthly Borrower(s) income.  In other words the Borrower(s) Debt divided by Borrower(s) Income = Debt-To-Income Ratio (DTI). For example if the Borrower(s) have \$2,000 in Monthly Debt, and \$5,000 of Monthly Income:

\$2,000/\$5,000 = .40% DTI

Every Borrower(s) has TWO Debt-To-Income Ratios:

• The first is the Housing Ratio, known as the "Front or Top Ratio"
• The second is the Total Debt-To-Income Ratio, known as the "Back or Bottom Ratio".

The following is what is included in each Ratio.  As I list each debt that is calculated into the Debt-To-Income Ratio's, I will indicate if the debt is just specific to a Loan Program.

Housing Ratio more commonly known as the "Front or Top Ratio" consists of:

• The Loan Principle & Interest
• Property Taxes
• Homeowners Insurance (hazard insurance)
• Homeowners or Condo Association Fees (HOA) Note: only if the property is located in a development that has a Homeowners Association.
• Private Mortgage Insurance (PMI) - Only on Conventional, or USDA Rural Loans.  Note: There is no PMI on Conventional Loans if Borrower's Downpayment is 20% or more.
• Monthly Insurance Premium (MIP) - Only on FHA Loans
• Downpayment Assistance Loans
• Second Mortgage, Line of Credit, if it is done at the same time as the First Mortgage.

Total Debt-To-Income Ratio more commonly known as the "Back or Bottom Ratio" consists of all the debts that were included in the Housing Ratio plus:

• All Monthly Revolving Debt such as:
• Credit Cards
• Loans such as:
• Car Loans
• Student Loans
• Personal Loans
• Second Mortgage, Home Equity, & Line of Credit if not done at the same time as the First Mortgage, or was done at the same time but is being subordinated on a new loan.
• Child Day Care - Only on VA Loans.
• Child Support Payments
• Alimony Payments
• Existing Mortgage Payments (second home, investment property, etc.)

There are exceptions for some of the above debts if they only have a certain amount of payments left, or if a loan is being deferred, which is common of student loans. But as a general rule, the above debts will be include in the Total-Debt-To Income Ratio.

I hope I have been able to provide the above information on What Is Included In The Debt-To-Income Ratios, in a basic easy to understand format, that is easy to explain, and proves useful to those reading it.

*******************************************************************************

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

This post has been included in Connecticut Real Estate News
Post is included in group: Real Estate Rookie
Post is included in group: ActiveRain Contests
Post is included in group: Realtors®
Post is included in group: 2013 BIG Jumpstart Blog Challenge
Post is included in group: 1st Time Buyers

18 Comments on What Is Included In The Debt-To-Income Ratios?

JAN
25
 Great job explaining all the pieces that going into the debt ratio calculations. In spite of many years of experiences putting these numbers together, an underwrite's views our calculations isn't always the same. 2:04am • #1
 George - Yes, this is great and very clear.  I suggested as I think many will find very helpful. 3:03am • #2
 You are not being picked on everyone has to provide all of this.   Bill 3:50am • #3
 George, this is so helpful to many, understanding your debt to income is such an important part of getting your loan approved 4:02am • #4
 Excellent.  I've also run into some cases where mortgage payments on an unsold home runs the ratios right up to the limit. 4:15am • #5
 The diferentiation between top and bottom ratios should be really helpful for many. Thank you! 4:41am • #6
 Thank you, Thank you and Thank you again George!!!  Suggested and now I have something that I can show my clients later that is much better explained then I can do it!!! Coming back to reblog later.  Thanks again :)!!! 6:09am • #7
 Joe that is why you got to love Underwriters ........ LOL Debbie, thank you for suggesting the blog :) Bill ...... LOL   Yes it applies to everyone, can I borrow the graphic for a future blog? Frank the two most important things are the Credit Scores an Debt-To-Income Ratios.  With those two pieces of information I have 75-80% of what I need to start to determine whether a Borrower qualifies or not for a mortgage. Lenn thank you for bringing up the other mortgages, I had forgotten about that since that is not usually the norm, but I edited the blog and add it to the Total-Debt-To-Income Ratio (Back) calculation. Brian, yes it helps to understand the difference between the two. Brenda you are Welcome, Welcome, Welcome :)  and thank you for suggesting the blog. 7:25am • #8
 George, that is the best explanation. Thank you for your post! Worthy of a feature and reblog. Much success to you in 2013. 9:49am • #9
 Fantastic information to explain this to clients.  I will bookmark this.  Thank you. 10:03am • #10
 George, Of course! Bill 10:32am • #11
 George -- thank you for responding to Brenda's comments and providing this thorough explanation of DTI ratios. Hope you have a fantastic weekend! 10:58am • #12
 George, these are such common questions from buyers inquiring as to whether or not they would even qualify for a loan.   Thx for the lending lesson! 4:07pm • #13
 George, it is funny how things change, I can remember when this was very important when getting a loan. Then no one cared and now it is back again.  It is a lot like one of my suites in my closet it had been out of style for 14 years and I just saw the style again on Michigan Ave in Chicago... 5:08pm • #14
 George - Great easy to understand explanation!!!   Have to give this to my recent buyers! 8:26pm • #15
JAN
26
 Pamela, thank you, glad that you think it is. Paula, hope that this is useful for you in the future Bill thank you Steven, thank you, and thank you for reblogging it. Joan, it all starts with the DTI and credit, so Buyers need to be aware of it, and my job to make sure they understand it. Dave that is very true, and by the way I still have a couple of leisure suit that I am waiting to come back in style .... LOL Dagny I hope the blog helps them to understand it. 1:04am • #16
 Thanks for this explanation.  I think I will print it out and keep it handy. 5:02am • #17
JAN
27
 Barbara, hope it comes in handy for you. 11:05am • #18

George Souto

George Souto NMLS# 65149 FHA, CHFA, VA Mortgages Connecticut

Office Phone: (860) 573-1308

Cell Phone: (860) 573-1308

Email Me

Listings