Understanding DTI requirements

[Eric Knapp]

It is my understanding that to qualify for a conventional mortgage, banks generally have a 28/36 DTI limit, where front-end value of 28% is based on PITI, and back-end value of 36% based on total revolving debt.

First, is that understanding correct?

Second, If I have two mortgages already, one my home, the other a rental, and am seeking a third conventional mortgage for another rental, do both current mortgages get counted in the front-end figure, or is the rental mortgage only count back-end?

[John Jackson]

Jon is right on, or very very close, so let's put this into my terms...ie: moron's terms...
DTI for some conventional loan programs is 50%, notice I did not say FHA...BUT, if you want to give yourself some room, I always go by 43%, but let's expand on what Jon mentioned, as it is very important.
Let's say you have a house that your payment is $1000 a month.
Now, you have it rented for $1000 a month.
You are break even, right? well...here's how the lenders look at that.
you are getting $1000 a month, but the lenders only accept (depending on the lender 70% or 75%) of what you are bringing in.
so....they will show, for paper purposes...that you are getting $750 and that adds $250 to your debt side...
What that means..is that although you are breaking even on this house, the lender looks at it as ADDING $250 a month to you debt to income.
I hope that helps.