Debt-to-income (DTI) ratio during COVID

3 Replies

Hello everyone!

I've had a quick thought this morning about how debt-to-income ratio is currently being calculated.

I am aware of the normal calculation but with all the student loan and mortgage forbearance we are currently experiencing, is that being taken into account during loan approvals?

Example: First time homebuyers have student debt with a $500/month payment. They also have 2 car loans for a total of $500/month. Their monthly income (take-home) is $4,000/month.

The standard formula would give you 25% DTI but with the forbearance putting student loans payments on hold till September 30th, is their DTI now 12.5%?

Thanks everyone!

Hi Dan. I am not a lender but monthly interest owed is interest owed regardless if the borrower is paying or not. Lenders are not offering mortgages to borrowers with loans in forbearance. 

Originally posted by @Dan Linger :

Hello everyone!

I've had a quick thought this morning about how debt-to-income ratio is currently being calculated.

I am aware of the normal calculation but with all the student loan and mortgage forbearance we are currently experiencing, is that being taken into account during loan approvals?

Example: First time homebuyers have student debt with a $500/month payment. They also have 2 car loans for a total of $500/month. Their monthly income (take-home) is $4,000/month.

The standard formula would give you 25% DTI but with the forbearance putting student loans payments on hold till September 30th, is their DTI now 12.5%?

Thanks everyone!

Depending on loan program and a couple other things, either 0.5% or 1% of the total student loan balance will be used as the payment for DTI purposes.

Student loan balance $90k, payment $500? $500 per month for DTI purposes.

Student loan balance $90k, payment $0 for whatever reason? Either $900 or $450 per month for DTI purposes.

@Chris Mason thanks Chris, that was exactly what I was wondering and makes perfect sense!

I figured that even with monthly payments and interest being suspended, the lenders were finding some way to account for these debts... Just wasn't sure how.

Thanks again!