Debt-to-Income (DTI) Calculation

Debt-to-income (DTI) ratio: Total monthly debt / Total monthly income.

• Total monthly income calculation
• Total monthly debt 
  • If subject property is the primary residence
  • If subject property is non-primary residence (second home or investment)
• Differences between DU and LPA
  • Alimony and Separate Maintenance Expense
  • 30-day accounts
• Examples
  • Example 1 - Purchase of investment property
  • Example 2 - Purchase of primary residence
  • Example 3 - Existing investment property REO

Resource: Selling Guide: B3-6-02, Debt-to-Income Ratios (05/04/2022)

Total monthly income calculation

Total monthly income is calculated by summing the below:

• Total of all income types under employer on annual basis divided by 12 to get monthly amount
• Other monthly income not associated with property or employment
• Everything under other income
• Positive sum of all net monthly rental income from non-subject property REOs
  • Per DU guidelines, they do not accept blank or $0 values. When OwnedPropertyRentalIncomeNetAmount is 0, Blend changes this to be .01 per guidance by Fannie.
• Positive net monthly rental income from subject property REO
• For 2-4 unit properties that are primary residence subject properties : Expected gross monthly rental income * occupancy factor - PITIA
  • This information needs to be included in the “Subject property info” in the loan application
• For 2-4 unit properties that are primary residence non-subject properties : Expected gross monthly rental income - PITIA
  • If “net monthly rental income” has been manually updated or there is already an existing value, Blend does not recalculate this field. Instead, we will use the value populated in that field in our DTI calculations.

Resources:

• Selling Guide: B3-3.5-02, Income from Rental Property in DU (06/01/2022)
  
• Rental income for non-subject properties
• Selling Guide: B3-3.1-08, Rental Income (10/04/2023)

Total monthly debt 

Total monthly debt is calculated by summing the below:

If subject property is the primary residence

• Proposed housing expense, including proposed monthly payment amount for the subject loan and any other expected monthly expenses
• All liabilities listed under monthly debt, including linked REOs (an REO must be linked in order to run AUS)
• All expenses for non-subject real estate owned properties where the property disposition is “Retain as second home” or “Retain as investment property” (such as homeowners insurance, taxes, homeowners association dues, other monthly costs)
• Negative sum of all net monthly rental income of all non-subject property REOs
  • Per DU guidelines, they do not accept blank or $0 values. When OwnedPropertyRentalIncomeNetAmount is 0, Blend changes this to be .01 per guidance by Fannie.

If subject property is non-primary residence (second home or investment)

• If primary residence is NOT owned - include monthly rent payment on primary residence
• If primary residence is owned (non-subject) - include all property expenses, including monthly payment, insurance, taxes, association dues, etc.
• Proposed housing expense, including proposed monthly payment amount for the subject loan and any other expected monthly expenses
• All liabilities listed under monthly debt, including linked REOs (an REO must be linked in order to run AUS)
• All expenses for non-subject real estate owned properties where the property disposition is “Retain as second home” or “Retain as investment property” (such as homeowners insurance, taxes, homeowners association dues, other monthly costs)
• Negative sum of all net monthly rental income of all non-subject property REOs
  • Per DU guidelines, they do not accept blank or $0 values. When OwnedPropertyRentalIncomeNetAmount is 0, Blend changes this to be .01 per guidance by Fannie.
• Negative monthly net rental income of subject property REO

Resources:

• Selling Guide: B3-6-05, Monthly Debt Obligations (05/04/2022)
  
• Selling Guide: B3-3.5-02, Income from Rental Property in DU (06/01/2022)
  
• Rental income for non-subject properties

Differences between DU and LPA

Alimony and Separate Maintenance Expense

LPA treats these two items as a negative income amount, and thus subtracts the sum of these two values from the monthly income. Both Blend and DU treat these as an expense, and thus adds to the liabilities.

30-day accounts

A 30-day account is any account that requires the balance to be paid in full every month.

Fannie Mae / DU does not require open 30-day charge accounts to be included in the debt-to-income ratio. More info about how Fannie Mae handles 30-day charge accounts can be found here.

Freddie Mac / LPA does require that the balance be included in the debt-to-income ratio, or the Seller must verify that the Borrower has sufficient funds to pay off the outstanding account balance. The funds must be in addition to any funds used to qualify the borrower for the mortgage transaction, and the source of funds must be an eligible source as described in Section 5501.3 in the Seller Guide.

Snippet from LPA spec: 

Snippet from DU spec: 

Examples

Example 1 - Purchase of investment property

Subject property is investment property with no expected monthly income, with two additional REOs (one primary and a second investment property)

Example 2 - Purchase of primary residence

Subject property is primary residence, with additional investment REO that has net rental income.

Example 3 - Existing investment property REO

Subject property is investment property with no expected rental income, with one additional REO