debt-to-income ratios

Lenders use two ratios to measure your ability to manage the payments you make each month and to repay the money you anticipate borrowing.   They are know as your “Housing Expense ratio” and your “Debt-to-Income ratio.”  While your Housing Expense ratio compares your monthly mortgage payment (PITI) to how much you earn each month before taxes; your Debt-to-Income ratio compares your gross monthly income to the total cost of your projected house payment PLUS all other debt (such as credit cards, car notes, other debt etc.).  It is important to note that your Debt-to Income does not include items like your current housing payment, utilities, insurance payments etc.

Housing Expense Ratio =       the total monthly payment of your new home (PITI) / your gross monthly income

Similarly,

The Debt to Income Ratio =   the total monthly payment of your new home (PITI) PLUS all other monthly debt / your gross monthly income

Standard underwriting suggests a maximum guideline of 31% on the Income Ratio and 43% on the Debt Ratio, but these ratios can vary based on your loan program, your financial strength as the borrower, and your down payment amount.