Am I calculating DTI properly?

[trnl2016]

Can you guys tell me if I'm calculating / thinking of this properly? Not considering scores or anything, I just want to make sure my understanding of DTI is correct. For "home payment" I do understand that it's mortgage, tax, insurance, etc. And obviously I know it's all contingent on credit scores, etc. Again, just want to make sure I understand what the calculations mean.

MONTHLY GROSS INCOME: $9,021

• FE DTI limit (0.31) = $2,796 --> this is the absolute maximum amount of monthly home payment I could qualify for
• BE DTI limit (0.43) = $3,879 --> this is the absolute maximum amount of monthly total payments I can be obligated to, which includes revolving debt, installment loans, and the hypothetical new monthly home payment

• Current BE DTI calculation: BE DTI limit = monthly obligations + home payment
• Current BE DTI calculation: $3,879 = $1,643 + (x) home payment
• (x) = $3,879 - $1,643 = $2,236 for home payment

So if I take the BE DTI limit of $3,879 and subtract my current monthly obligations (cards & loans), that's the *actual* current maximum home payment I could qualify for, based on my current debt obligations. So in my example, I could technically qualify for a home where the payments do not exceed $2,796 (FE DTI), but due to my current debt obligations, I can only really truly qualify for a home payment of $2,236 max.

Is that right?

[StartingOver10]

Yes! Exactly right.

[Anonymous]

You're definitely on the right track, the only thing I would add is that depending on your overall credit and the type of loan for which you're applying, those limits could totally go out the window.  That is, there are many instances where people with solid repayment history and good income profiles (such as your own) could easily qualify with DTI approaching 50%.

Again, depends on your credit and especially the type of loan.  Good luck!

[Anonymous]

You are calculating DTI correctly, however you can often stretch the ratios past 31/43 unless there are lender overlays. 

[trnl2016]

Awesome! Thank you, everyone, for the answers!

I really don't want to pay more than $1500-1800/mo anyway, so this just tells me that I should be good to go on the income/DTI side (which is a relief because I was worried my DTI would be too high)! Woohoo! I just need to work on a few derogs from my credit report and continue saving for my down payment, and I'm on my way to a new home. Yiippeeee. Thanks again!