Calculating DTI can be one of the trickier parts of the system, because there are so many different situations that can factor into the equation. This article will first cover the proper calculations for how to get your Front-End Ratio and your Back-End Ratio and then will address a bunch of specific situations to look out for if you are having trouble obtaining the proper ratios.

Important: Our DTI calculations/policies are based entirely on the standards set by the Fannie Mae Selling Guide which you can find here.

Basic DTI Calculations:

-For both the front-end and the back-end DTI ratios, once you have all of your relevant debts and incomes known, you first add all of the monthly debts together to get a total debts amount and then you divide that total debts number by the total monthly income. That will give you a decimal number and then you can multiply that by 100/move the decimal two places to the right to get your DTI percentage.

For example, if you have total relevant monthly debts of $4000 and you have a total monthly income of $9000, you divide $4000 by $9000 to get .4444. When you move the decimal place over/multiple by 100 you get a DTI of 44.44%


Front-End Ratio Calculation:

-The front-end calculation is much simpler because it has a lot less factors than the back-end calculation. The way to conceptually understand the front-end ratio is that it is the ratio of the borrower(s) primary residence housing expenses to their income. It will not take into consideration second home payments or investment home payments, and it will also not consider additional liabilities other than the primary residence P.I.T.I.A. (principal, interest, taxes, insurance, & association fees) and the gross income.


Back-End Ratio Calculation:

-This calculation is more complex because it includes all of the income and all of the liabilities (that are not omitted or being paid off) associated with your borrower(s) rather than just their income and their housing expense from their primary residence. If borrowers have multiple properties or a bunch of liabilities it can be quite complex. Down below I will cover some common use cases that can lead to incorrect back-end DTI calculations.

Common Scenarios to check to resolve DTI issues:

Occupancy Type & Declarations Mismatch: 

-If Borrower Declaration part A (in the Borrower Info tab) is marked "Yes" for any borrowers then the Occupancy on the Loan and Property tab should be marked as Primary Residence and not Second Home or Investment home. If it is marked "No" for all borrowers then the property type should not be marked as a Primary Residence.

Calculating Other Liabilities: 

-When calculating for your back-end DTI ratio, one of the things you need to add in to the debt side is "Other Liabilities". This includes all liabilities that are not connected to a mortgage payment for REO. Make sure you are not double-counting any mortgage liabilities and also make sure that you are not including any liabilities that are marked as "Paid Off" or "Omitted" because they will not be relevant to the borrower's ability to make payments on their prospective loan.

Investment/Second-Home Properties with Rental Income:

-The majority of properties that yield rental income are either Investment or Second-Home Occupancy types and Fannie Mae accounts for the rental income and housing payments in the DTI calculation the same way for both of these cases.

When the Occupancy type is Investment or Second-Home, you will only be adding one number to the DTI calculation and that will be the net profit or net loss of the property. So if your housing payment is $3000 and your rental income is $3500 then the net income of that property would be $500 and that would be added to the income side of the DTI equation (the housing payment would not be added anywhere because it is accounted for in this net property calculation).

If the opposite is the case where the property costs more than it collects in rental income, then that net loss would be added to the debt side of the equation.

Primary Residences with Rental Income:

How Fannie Mae accounts for housing payments and rental income differs depending on the Occupancy type of the property. For primary residences that yield rental income, Fannie Mae adds the housing payment to the debt side of the DTI calculation and then they also add the rental income to the income side of the DTI calculation. This is a less common case but it is important to check for the occupancy type of the property before calculating DTI because this is not how Fannie and thus Arive account for rental income from properties with the other occupancy types.

Areas to Check if Rental Property Payments/Income are Off:

If you have read the above sections on how Fannie Mae and Arive calculate rental income for DTI purposes and still think that their may be a miscalculation of the housing expenses/rental income for a property there are two main places that you should check:

1) The occupancy section of the Loan and Property tab. Only the net amount (positive or negative) of the property will factor into the DTI calculation so make sure this reflects how you need it.

2) The REO section within the Financial Info tab.

Non-Occupant Co-Borrower for a Primary Residence Transaction:

-If your subject property is for a primary residence and the co-borrower is not going to be occupying the property, then Arive will not consider the co-borrowers separate rent if they are on the same 1003 as the borrower. This is not a miscalculation, this is by design because the Fannie Mae guidelines dictate that if their is a non-occupant co-borrower for a primary residence transaction, they should be on their own 1003 application separate from the main borrower, even if the two borrowers are married. If you separate the co-borrower on to their own 1003, you will then see that the DTI will be accounting for their primary residence rent payments.