Ask a loan officer for your DTI and the number you hear back is the back-end ratio: the new house payment plus all your other monthly debts, divided by gross monthly income. The housing-only front-end ratio is the other half of the test, and on most approvals the back-end ratio is the one that runs out first.
Room left for a house payment on $6,000 a month
Picture a buyer earning $6,000 a month before taxes who carries $640 a month in debts: a $430 car payment, card minimums of $75 and $35, and a $100 personal loan. Each program's total limit, minus that $640, is the room left for the house payment.
| Program | Total limit | Total allowed | Room for the house payment |
|---|---|---|---|
| FHA, automated approval | 56.9% | $3,414 | $2,774 |
| Conventional | 50% | $3,000 | $2,360 |
| VA | 41% guideline | $2,460 | $1,820, more with strong residual income |
| USDA | 41% | $2,460 | $1,740 (the 29% housing limit binds first) |
USDA's row shows how the two ratios work together. The total test leaves $1,820, but USDA's 29% housing limit caps the payment at $1,740 on $6,000 of income, so the lower number wins.
Debts that land in the back-end ratio
The debt side comes from your credit report plus a few obligations that never show up there:
- Car loans and leases, personal loans, and furniture or store financing
- Minimum payments on credit cards, or 5% of the balance when the report shows no minimum
- Student loans, even at a $0 payment: FHA counts 0.5% of the balance and Conventional 1% (unless a $0 income-driven payment is documented)
- Child support and alimony you pay
- Loans you co-signed, unless someone else has paid them for 12 months
Your rent, utilities, phone, car insurance and groceries stay out of it.
Moving the number
Every dollar of monthly debt you clear becomes a dollar of room for the house payment. In the example above, paying off the personal loan with $1,900 left on it frees $100 a month on every program. At a 5.75% rate, $100 of principal and interest carries about $17,000 of loan.
A co-signer moves the income side, adding their gross income along with their own debts. When VA's 41% guideline is the limit, the residual income test can approve a higher ratio. On a manually underwritten FHA loan, compensating factors lift the total limit from 43% to 47% or 50%.
Run your debts through the DTI calculator and it lists the room left on each program. For a broker's read on which payment to knock out first, call AAA Capital Funding at 888-601-8344.