General Process
Financing
FAQS
General Process
Financials
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During the prequalification process a mortgage loan officer will calculate what you can afford based off a government set qualification ratio for conforming conventional loans. We call this the "DTI" or "debt to income ratio".
WHAT
CAN I
AFFORD?
< 45% LIKELY QUALIFY
> 45% DON'T QUALIFY
The Debt-to-Income ratio (DTI) is a ratio that was set by Fannie Mae and Freddie Mac AKA "The Enterprises" that dominate and govern mortgage lending practices in the United States. A DTI is calculated by taking your total estimated liabilities (including what you think your mortgage payment will be) and dividing it by your gross income. To qualify for a conventional loan, your DTI needs to be under 45%. Some can go up to 50% with an "exception" from the underwriter, but ideally you are not going anywhere near 45% on your DTI ratio.
If you are looking at an FHA and VA options those typically can go up to 55% DTI. (VA is a whole other beast with specific rules. Contact us if you want to have us evaluate your specific scenario for free.)
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Since all physician loans are conventional it is safe to assume the 45% rule.
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How to calculate my DTI?
Our calculator above is a way to give you a rough estimate on where you sit on your DTI. If you need help estimating your mortgage payment Smart Asset has a great online calculator that is specifically tailored to each geographic location (since taxes and insurance rates vary greatly by state) you can use to estimate your mortgage payment. Make sure you click on the "advanced" options
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If you are not sure what all your minimum payments are from your credit report you have two options to get that information:
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The safest course is have a loan officer pull it and give you a copy.
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The government mandates that everyone is entitled to one free "tri-merge" credit report a year if you want to see exactly what the minimum payments from your credit report are. A tri-merge report is the official credit report offered from Experian, Transunion, and Equifax all in one. A FICO score will not give you your accounts and balances, and usually is only pulled from one of the three bureaus. Be careful when researching what the current free website is to give you a tri-merge report though as there are many scams that make you pay for the report or are flat out fraudulent if you spell even 1 letter wrong in the URL. I am not linking it here on this website for liability reasons, but it is a resource out there you can find.
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If you want a detailed example of how a loan officer calculates a DTI step by step, we created one below.
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EXAMPLE​
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Maren and John are both third year neurology residents looking to buy their first "done with training" home together in 6 months. They each just signed a job offer that gives them a $180,000 a year salary. At the beginning of the year they re-certified their income based repayment and the minimum payment the first year out of training will only be $170 each since it was based off their residency income. They owe 400,000 on their loans total at $200,000 a piece. Maren has a car payment of $350 a month. John has an American express card that usually has about $1500 on it at any given time. The minimum payment for the AMEX card is $35. They have no other debt. They are hoping to be able to afford a house payment of $4500 a month.
When we add up the MINIMUM payments (not total balances) from the credit report, add it to what they want their payment to be under and add that together for the numerator = $5225. The denominator is the yearly pre-tax salary of each divided by 12 (to get it monthly) then added together to get $30,000. Divide 5225/30,000 and you get 17%. Well under the 45% DTI max.
The best and safest course is have a loan officer pull it and give you a copy
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