DC Debt To Income Ratio

Debt-to-income ratio is the calculation that measures monthly debt payments against gross monthly income. It helps lenders determine buyers’ ability to make monthly mortgage payments.

debt to income ratio

Why Is DTI Important?

Debt-to-income ratio can affect your credit score and ability to secure a loan. Lenders are concerned with the amount of debt borrowers can acquire before having financial difficulties.

What Is The Maximum DTI Allowed By Lenders?

Qualified Mortgages

A Qualified Mortgage has less risky features that lower risk for the lender. These include a maximum debt-to-income ratio (the percentage of your income that goes toward monthly debt payments). Most conventional loan underwriting conditions limit DTI to 45%, but some QM lenders will accept ratios up to 50% if the borrower has compensating factors, such as reserves allocated for housing expenses.

For manually underwritten loans, Fannie Mae’s standard maximum total DTI ratio is 36% of the borrower’s stable monthly income. The maximum can be exceeded up to 45% if the borrower meets the credit score and reserve requirements reflected in the Eligibility Matrix. For loan casefiles underwritten through Fannie Mae’s Desktop Underwriter®, the maximum allowable DTI ratio is 50%.

While the CFPB says the debt-to-income ratio cap is typically the highest ratio a borrower can have and still get a Qualified Mortgage,  there are some exceptions:

  • A small creditor still has to consider your ratio, but is allowed to offer a Qualified Mortgage with a ratio higher than the cap. In most cases, a lender is a ‘small creditor’ if it had under $2 billion in assets in the last year and generated no 500 mortgages or less during the previous year;
  • Larger lenders may still make a mortgage loan if your debt to income ratio is above the cap, even if this prevents it from being a Qualified Mortgage. But they will have to make a reasonable, good-faith effort, following the CFPB’s rules, to determine that you have the ability to repay the loan.

Non-Qualified Mortgage Loans

Some Non-Qualified Mortgage loans permit ratios over 50%, but may require higher down payment minimums of 10% to 20%.

Other options for higher DTI ratio borrowers include FHA mortgages, VA mortgages, CDFI Mortgages and Asset based Mortgages.

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Bullet Points

  • DTI is typically capped at 45%
  • Reserves allocated for housing can help increase ratio caps
  • Get professional advice

Caren L

While other ​agents said, “​T​his is what you need to do;” The Isaacs Team said, “​W​e can do this for you!” Our process was smooth and quick, and they designed a strategy and negotiated a sale well above our asking price; and a purchase price below asking – both in the same market.

Lowering Your Debt-To-Income Ratio

If your DTI ratio is adversely affecting your credit scores and ability to obtain a mortgage loan, start by discussing the issue with your mortgage lender and financial advisor. It’s likely they’ll recommend some or all of these steps:

  • Pay down credit cards
  • Increase credit limits
  • Reduce or eliminate smaller monthly debts
  • Increase your down payment amount
  • Increasing your income by disclosing non-traditional sources. Some lenders factor in sources of income such as alimony, military or work housing stipends and trust income.
  • Take on no new debt while you pay off existing debt

Keeping your debt-to-income ratio low can help you qualify for a home loan and pave the way for other borrowing opportunities. It can also give you the peace of mind that comes from handling your finances responsibly.

More Information

Monitor your progress with a mortgage calculator:

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