Debt and Housing Ratios: How Do They Affect Your Loan?
Lenders use two ratios to judge whether your income can carry a loan. The housing ratio is your monthly housing cost divided by your gross monthly income. The total-debt ratio, usually called debt-to-income or DTI, adds your other monthly debt payments on top.
For a manufactured home in a community, the housing cost includes the space rent. That is the figure buyers most often leave out when they run the numbers themselves, and it is why the same home can look affordable in one community and tight in another.
No single passing figure applies to everyone: acceptable ratios depend on the program, your other debts, and disposable income. What you can do is work out your own two numbers before you shop.
What goes into each ratio
The two ratios side by side
| Detail | Housing ratio | Total-debt ratio (DTI) |
|---|---|---|
| Also called | Front-end ratio | Back-end ratio |
| Top of the fraction | Loan payment, property taxes, insurance, and any space rent | Everything in the housing ratio, plus your other monthly debt payments |
| Bottom of the fraction | Gross monthly income | Gross monthly income |
| What it shows | How much of your income the home takes | How much of your income is already committed, home included |
Gross monthly income is what you earn before taxes and other deductions, not your take-home pay. The Consumer Financial Protection Bureau explains how debt-to-income is calculated in the same way. If you are self-employed, the income figure comes from your tax returns instead of a pay stub; see how self-employed income is calculated.
The housing costs a lender counts on a manufactured home
Four items make up the housing cost:
- The loan payment. Principal and interest on the loan itself.
- Property taxes. The tax on the home, and on the land if you own it.
- Insurance. Your homeowners premium, divided by twelve.
- Space rent. If the land is leased, the monthly rent paid to the community. It is separate from the loan, but it is counted with it. Homeowners association dues are treated the same way where they apply.
Space rent is often the largest item after the loan payment, and nothing about your loan changes it. How space rent affects what you can afford covers how to compare communities on it.
The other debts in the total-debt ratio
The second ratio adds the monthly payments you already owe. Lenders typically take these from your credit report and your application:
- car loans and leases;
- student loans;
- the minimum payment on each credit card, not the balance;
- personal loans and any other mortgage;
- court-ordered payments such as child support or alimony.
Utilities, groceries, fuel, phone service and insurance on your car are generally not counted in either ratio. They still come out of the same paycheck, so they belong in your own budget even though a lender’s formula leaves them out.
Work out your own two numbers
Calculating both ratios
- Find your gross monthly income Use the amount before taxes and deductions. If your hours or pay vary, use an average rather than your highest month.
- Add up the monthly housing cost Take an estimated loan payment from the payment calculator, then add taxes, insurance and the space rent the community quotes you.
- Divide the housing cost by your income The result is your housing ratio.
- Add your other monthly debt payments and divide again The result is your total-debt ratio.
The calculator can do the division for you. It adds taxes, insurance and space rent to the estimated payment, and its “Am I in the ballpark?” section shows an estimated DTI once you enter your gross monthly income and monthly debt payments. The results are educational estimates, not a loan offer.
Why the same ratio can get different answers
A ratio is a percentage, and a lender also cares about dollars. Disposable income is what is left each month after taxes, the housing cost and other debts are paid. The same ratio leaves far more of it on a large income than on a small one, so two applications with the same ratios can be read differently.
The rest of the file counts too: your credit history, the size of your down payment, the savings you will have after closing, and the home itself. That is why no single published figure would tell you whether your application works, and why every application is reviewed individually.
What you can change before you apply
Income is one of three limits on a loan, along with the home’s value and the cash you bring. How much you can borrow explains how the three fit together.
