Debt-to-Income Ratio Explained for Davis County Home Buyers

Debt-to-income ratio, or DTI, compares your monthly debt payments to your monthly gross income. It is one of the main numbers a lender uses to decide how large a payment you can carry. If you are buying in Davis County, your DTI often matters as much as your credit score, and it is one of the few numbers you can change before you apply.

Charisse Walker is a real estate agent with Chalker Properties Group in Salt Lake and Davis County, Utah, and a licensed mortgage lender. I explain DTI as a licensed mortgage lender in general terms. Your own lender runs your real numbers and sets your approval, and limits differ by loan program and by lender.

This article shows how the math works, what counts as debt, and what you can do in the months before you apply.

Add up your monthly debt payments. Divide by your gross monthly income, which is your income before taxes. The result, shown as a percentage, is your DTI.

Here is a simple example with round numbers, not a real client. Say a household earns 8,000 dollars a month before taxes. The monthly debts are a 400 dollar car payment, a 150 dollar student loan payment and 100 dollars in minimum credit card payments. That is 650 dollars in existing debt. Now add the new housing payment, say 2,000 dollars including principal, interest, taxes and insurance. The total is 2,650 dollars, and 2,650 divided by 8,000 is about 33 percent.

Lenders often look at two versions of this number. The front-end ratio looks at the housing payment alone. The back-end ratio looks at the housing payment plus all other monthly debts. The back-end number usually gets the most attention.

Lenders usually count the monthly payments that show on your credit report, plus some that do not.

• Usually counted: car loans, student loans, credit card minimum payments, personal loans, and other mortgages.
• Often counted: child support or alimony you pay, and some other court-ordered payments.
• Usually not counted: utilities, groceries, phone plans, insurance premiums, and subscriptions.

Student loans deserve a closer look. Even when payments are deferred or low, a lender may use a calculated payment for the ratio, and the rule depends on the loan program. Ask your lender how yours will be treated before you shop.

Your housing payment includes more than the loan. Taxes, homeowners insurance and, in some cases, mortgage insurance or association dues all affect the number. The article on how much house you can afford in Utah shows how to build that full payment.

There is no single magic number. Different loan programs set different guidelines, and a lender can approve a higher ratio when other parts of the file are strong, such as credit, savings, and the size of your down payment. A lower ratio gives you more room, and a higher one gives you less.

I do not quote a limit here because guidelines change and vary by program. Ask your lender for the range that applies to the loan you want, and ask how much your DTI would change if you paid off a particular debt. That answer is more useful than any rule of thumb.

If you are comparing programs, the guide on FHA and conventional loans explains how they differ.

No. A lender tells you what the guidelines allow. You decide what feels comfortable. Those are different numbers, and the gap between them is where many buyers feel stretched.

Think about your life after closing. Maintenance, a furnace that fails in January, a yard that needs work, a commute that costs more than you expected. Davis County homes vary a lot in age and lot size, and the upkeep varies with them. A payment that leaves room for those costs lets you sleep better than one that uses every dollar the lender will approve.

Set your own ceiling first. Then see whether the approval clears it.

You have two levers: reduce debt, or raise income that can be documented. Most buyers focus on debt.

1. Pay off small loans completely. Eliminating a 200 dollar monthly payment often helps more than paying extra on a large balance.
2. Pay down credit cards. A lower balance can reduce the required minimum payment and may help your credit score.
3. Avoid new debt. A new car loan before closing can change your approval.
4. Document all your income. Part-time work, overtime, and bonuses can count when there is a track record, and the lender decides how.
5. Consider a larger down payment. A smaller loan means a smaller payment. Look at down payment assistance programs too.

Time matters. Make changes months before you apply when you can, and talk to your lender before you pay off anything, so you know which move helps the most.

With two borrowers, the lender combines both incomes and both sets of debts. A strong income can lift the ratio down, and a large debt on the other side can pull it back up. Sometimes the lowest-income borrower has the best credit, and sometimes the reverse. Run the file both ways before you decide who goes on the loan.

If one partner has significant debt, ask your lender to show the result with and without that person on the loan. That can tell you whether the debt is worth paying off first. Keep in mind that leaving someone off the loan also changes who owns the home and who is responsible for it, which is a conversation for you and your attorney, not only your lender.

Honest numbers on day one prevent surprises on day thirty.

• Paying off a debt in a way that drains savings needed for closing.
• Opening a new credit card to earn rewards during the process.
• Leaving out a payment, such as a loan for a family member that is in their name and yours.
• Assuming a pre-qualification is final. See pre-qualified versus pre-approved for how those differ.
• Waiting until an offer is written to check the ratio.

Here is a typical example, not a specific client. A couple plans to buy in Davis County in about six months. They meet with a lender early, who runs their numbers and shows how their DTI looks at the price range they want.

The lender points out that a car loan with a few payments left and a store credit card are pushing the ratio up. The couple pays off the card, finishes the car loan on schedule, and holds off on any new purchase. When they apply, their numbers are cleaner, and they have more room to choose a home without stretching.

The plan was not complicated. It started early and used facts.

Does my DTI affect my interest rate? It can influence approval and pricing, depending on the lender and loan type. Ask your lender.

Is rent counted in DTI? No. Your rent is replaced by the new housing payment.

Do I use gross or net income? Gross, meaning before taxes.

Can a co-borrower help? Their income can help, and so can their debts hurt. Both are counted.

When should I check my DTI? Months before you shop, and again before you write an offer.

Write down your monthly debts and your gross income, and work out your ratio. Then meet with a lender who can show you the program guidelines. Charisse Walker is a real estate agent with Chalker Properties Group in Salt Lake and Davis County, Utah, and a licensed mortgage lender. If you are planning a purchase in Davis County, you can reach out on the contact page. You can also read how to get pre-approved for a home loan in Utah to see what to bring.