Overview
This guide explains how to calculate your debt-to-income (DTI) ratio, a crucial metric lenders use when evaluating mortgage applications. Your DTI ratio comprises 30% of UQUAL's Loan Readiness Score.
Key Concepts
Two Types of DTI Ratios
The front-end ratio focuses on housing expenses alone, with a recommended maximum of 28%. The back-end ratio encompasses all monthly debts and typically should not exceed 43% for conventional loans.
Calculation Steps
1. Determine Gross Monthly Income
- Salaried employees: Annual salary ÷ 12
- Self-employed: Average of last two years of tax returns
- Include spouse's income if applying jointly
- Document variable income with two-year history
2. Identify Monthly Debt Obligations
Include:
- Credit card minimums
- Car loans
- Student loans
- Personal loans
- Existing mortgages
Note: Utilities and groceries are excluded from DTI calculations.
3. Perform the Calculation
Back-end DTI = (Total Monthly Debts ÷ Gross Monthly Income) × 100
Example: $2,000 ÷ $6,000 × 100 = 33.3%
