Debt to Income Ratio on Home Loans

How Debt to Income Works in Phoenix

When an Arizona mortgage lender evaluates a prospective borrower’s mortgage application, one of the main elements used to approve or decline each borrower is something called a “Debt to Income Ratio.”

What is Your Debt to Income Ratio? 

The Debt to Income Ratio (or “DTI” for short) is a method used to determine how much debt a mortgage loan applicant has in comparison to their gross income.  Each different type of Arizona mortgage (Conventional, FHA, VA, USDA, Jumbo etc..) sets a maximum allowable Debt to Income Ratio limit which is expressed as a percentage (see below for more).  Each home loan applicant MUST have a Debt to Income Ratio at or below the maximum allowable DTI in order to be approved for each particular type of home loan.

How is Your Debt to Income Ratio Calculated? 

Debt to Income expresses a buyer’s monthly debt as a percentage of their gross (not net) income.  The way that Arizona Mortgage lenders calculate debt to income is very straight forward and simple.  Lets take a look!

Borrower’s Debt to Income Ratio = Borrower’s Total Monthly Debt/Borrower’s Gross Monthly Income

Example Debt to Income Ratio calculation:
Borr A earns $8,000 in gross income per month and has $1,500 in monthly debt before considering their new mortgage payment
Borr A is trying to qualify for a mortgage that equates to a $1,500 month payment
Borr A now has total monthly debt of $3,000 ($1,500 in existing debt +  $1,500 in new mortgage debt)
Borr A has a Debt to Income Ratio of 37.5%  ($3,000 total monthly debt/$8,000 gross monthly income = 37.5% Debt to Income Ratio)

The debts that are considered by a Phoenix mortgage lender in the Debt to Income Ratio calculation include each minimum required monthly payment for every debt that appears on a borrowers credit along with the new monthly mortgage payment that the borrower is applying for.   Note that any Arizona loan officer considers the monthly payment for all the debt that shows up on a borrower’s credit report and NOT the actual amount owed.  For example, if a borrower has a $30,000 car loan with a $600 monthly payment the lender will look at the $600 monthly payment NOT the $30,000 loan balance.

Rental Property Note – The expenses and revenue that a borrower may have for  any rental property they own is also a factor in the Debt to Income Ratio calculation.

Standard Home Loan Debt to Income Ratio Limits

FHA – 56.99%
VA – no fixed limit (typically VA maxes out at 56.99%)
Conventional – 45% to 50%
Jumbo – varies on product

Please let me know if you have any questions on how the Debt to income ratio  calculation works.  You can also APPLY NOW.

By Jeremy House

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  1. […] required credit score: 720 Maximum Debt to Income Ratio: 45% to 50% Maximum Loan Amount: $417k Maximum Loan to Value: 75% for a vacation home 1-4 units and […]

  2. […] payment equal to 56.99% of their gross monthly income.  Conventional mortgage rules cut that same debt to income ratio to 45% (50% in some special cases).  Some Phoenix area buyers utilize an FHA loan simply due to […]

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