Learning Objectives
- Calculate front-end and back-end DTI from gross income
- Cite DTI ceilings for FHA, VA, USDA, and Conventional
- Identify which debts are excluded from DTI
- Apply legitimate DTI-reduction tactics
How DTI Is Calculated
Front-end DTI = proposed PITI / gross monthly income. Back-end DTI = (PITI + all minimum monthly debt payments) / gross monthly income. Lenders focus on back-end.
Program Ceilings (typical)
- FHA — up to 56.9% with compensating factors
- VA — flexible if residual income passes
- USDA — 41% standard, 44%+ with compensating factors via GUS
- Conventional — up to 50% with strong file
Reducing DTI Without Paying Off Debt
- Pay an installment loan down to ≤10 payments remaining (excluded by Conventional)
- Remove authorized-user cards that don't help the score
- Document a non-borrower spouse's contribution to a debt
- Use bonus / overtime income with 2-year history
Key Takeaways
- Back-end DTI is the number that decides most loans.
- Installment loans with ≤10 payments left can be excluded on Conventional.
- Compensating factors can stretch FHA / Conventional DTI to 50%+.
End-of-Module Exam
Module 7 Exam — 5 questions
Pick the best answer for each question. Pass with 80% or higher to mark this module complete.
- 1.
Back-end DTI is calculated as:
- 2.
On Conventional, an installment loan can be excluded from DTI when:
- 3.
FHA DTI can typically be approved up to:
- 4.
Which is NOT a legitimate way to lower DTI?
- 5.
Gross monthly income for DTI is:
0 of 5 answered