Debt-to-Income Ratio (Overall Debt Ratios)
Just as important as the Housing or front-end ratio is the debt-to-income ratio or DTI. This is the amount of your gross monthly income that goes toward paying all debts considered in a loan. Lenders consider 42-48% the golden range for DTI. Lenders will want to see lower DTI’s, but by using disposable income we can sometimes stretch these ratios over the 48%.
DTI can be calculated using the three factors from above and the addition of a fourth:
- Monthly home payment
- Monthly space rent
- Monthly debt payments (car payments, mortgage payments, revolving credit, etc.)
- Gross monthly income
Your monthly debt payments are all added into one number and used in a similar equation. Let’s use the same numbers as before and make your monthly debt payment $350. Again, all you need to do is add, then divide to get your DTI. The equation looks like this:
DTI (43%) = ($720 + $800 + $350) ÷ $4,350
Again, you can use the same equation in the diagram above to see how much income or debt you would need qualify for the range of DTI ratios.
Why are debt & housing ratios considered?
As previously mentioned, housing and debt ratios are considered important to lenders because it shows how likely the borrower can make a loan payment. Borrowers with high DTI and housing ratios are more likely to be denied by lenders because of the possibility of the borrower defaulting on payments.
Calculating the ratios using the equations above can give you a good idea in advance if you qualify. We do have our disposable income program which may allow for higher overall debt and housing ratios
To find out more about our loan programs and to see if you qualify for a manufactured home loan, contact our office at 714-731-8080. You can also reach out to us via email at info@santiagofinancial.com
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