How to figure your DTI ratio!

Calculate your Debt to Income Ratio (DTI) so the lender & you have a better idea of what you can afford or if you qualify for loan modification.  Convential Loans were typically set at 29/36 & FHA loans at 33/43. The front end ration represents your Mortgage, Insurance & taxes. The back end represents your total recurring monthly debt. Many lenders show a higher DTI number closer to 33/38.

Formula for DTI Ratio

Example of DTI 33/38 with Gross Income of $50,000.00 year
Yearly Gross Income = $50,000 / Divided by 12 = $4166.00 per month income.
$4166.00 Monthly Income x .33 = $1,374.78 allowed for Mortgage Expense.
$4166.00 Monthly Income x .38 = $1583.08 allowed for Recurring Debt.

If you make $50,000.00 a year you would qualify for a house payment w/taxes, insurance of $1364.78 a month.  When recurring debt is at 38% which is $1583.00 a month. 

Why you need to know your DTI ratio

Every lender uses this method to determine how much you can afford on a home mortgage.  This is also used for those seeking loan modification and refinancing. Although each lender may allow a higher or lower percentage, they still want to know you have the income to make the payment at the rate they have set. 

I already have a home, why do I need to know my DTI ratio?

Do the DTI Ratio at 33/38 and if you clearing fall short of the allowed Mortgage Expense (33%) you will be an excellent candidate for mortgage debt relief by negotiating a loan modification.  There are many lenders that have programs in place to help homeowners refinance or modify the loan, even those homeowners underwater. 
Your income will have to justify the new monthly payment at the banks rate of (ex.) 33% or you will be denied.  See some examples of the ways lenders can lower your monthly payment at Hud.  The banks are being offered government incentives now to refinance qualifing borrowers.  Contact your bank to see if they have any programs in place to help you and if not, see Hud free counceling services to get a local advisor, they may be able to find you a bank that will refinance your loan under these new programs.