How Do I Calculate my Debt to Income Ratio for a Mortgage?
Hi, there. Craig Bosse. And I often get the question, how do I figure out my debt to income ratio? So, your debt to income ratio on a very basic level is the amount of your monthly debts divided by your monthly income. On the surface it sounds very simple, but it can get very complex when you think about all the different things that can go into it.
The hardest income to figure out is self-employed income. There are many things that we’d have to consider when there’s self-employed income. Generally it’s two year average. There are some things that we can add back in there and some things that we have to take out. The other thing that can be hard to figure for someone that’s not experienced in the mortgage business is fluctuating income such as commissions or bonus. Those are two year average. Usually if it’s going down, we have to use the lower of the two.
On the debt side, that’s fairly straightforward. It’s going to be basically everything that’s on your credit report. Also underwriters look for payments coming out of your bank statement on a regular basis and then use that to write some kind of letter of explanation on what that is. And if it’s something that’s not showing up on your credit report but you are paying for it on a monthly basis and obligated, you’re just going to have to count that in there as well. Alimony, child support. Those kind of things can go into your debt to income ratio. Rental homes, a lot of times people think, well, the check I get from the renter covers the mortgage so that doesn’t really count. But then when you get the tax returns, it shows a completely different story there. And usually there’s a loss there that we have to count into it too.
So that really the only way to get an accurate debt to income ratio is to have a consultation with a mortgage consultant such as myself or whoever you feel comfortable with. But those are the basics of debt to income ratio.