# How Encompass Calculates Debt to Income (DTI)

**Questions:**

How is the DTI calculated for Primary, Second Homes, and Investment Properties? When there are multiple 1003 Applications? How to troubleshoot the front-end and back-end DTI ratios?

**Details:**

DTI for Primary Residence

Debt-to-Income (DTI) is one of the factors used by lenders to determine the risk of a loan. Two numbers are used. These numbers are calculated in the Underwriting Information section of your 1008 form (Transmittal Summary). They are frequently referred to as the ratios:

**Front-end ratio**(field ID 740), also known as the housing or primary ratio, is calculated by taking**Total Primary Expenses**(field ID 1731) divided by the Total Monthly Income (field ID 1389).**Back-end ratio**(field ID 742), also known as the total ratio, is calculated using by taking Total Payments (field ID 1742) divided by the**Total Monthly Income**(field ID 1389).

**In the following example (Transmittal Summary Form):**

Front-end ratio = 995.26 divided by 5650 = .17615221 or 17.615%

Back-end ratio = 1717.26 divided by 5650 = .3039398 or 30.394%

**DTI for Second Homes and Investment Properties**

Debt-to-Income (DTI) is one of the factors used by lenders to determine the risk of a loan. Two numbers are used. These numbers are calculated in the Underwriting Information section of your 1008 form (Transmittal Summary). They are frequently referred to as the ratios:

**Front-end ratio**(field ID 740), also known as the housing or primary ratio, is calculated by taking**Total Primary Expenses**(field ID 1731) divided by the**Total Monthly Income**(field ID 1389).**Back-end ratio**(field ID 742), also known as the total ratio, is calculated by taking Present Housing Payment (field ID 737) plus**Total Payments**(field ID 1742) and dividing the sum total by the**Total Monthly Income**(field ID 1389).

**When there are Multiple 1003 Applications**

The debt to Income Ratio found on the primary borrowers 1003, **Front-end ratio** (field ID 740) and** Back-end ratio** (field ID 742) are inclusive of the both the primary borrowers debt and income as well as any other Co-Mortgagors debt and income as the Primary Borrower application is the application used for underwriting.

The subsequent 1003 applications will only include their own debt and income for the Debt to Income Ratio. The field ID's for each co-mortgagor set is the same as the primary borrower.

The Co-Mortgagors information debt will show up in the following sections of the Proposed Monthly Payment section of the primary borrower:

- **Primary Residence: Co-Mort Set** (field ID 1379)

- **Other Obligations: Co-Mort Set** (field ID 1384)

The Co-Mortgagors information for income will show up in the following sections of the Stable Monthly Income Section of the primary borrower:

- **Co-Mort Set** (field ID 1374)

**Troubleshooting DTI Issues**

When just the back-end ratio is incorrect, check the monthly payments from the 1003 Page 2. This can be done through the VOL listings. Any revolving or installment items that are not being paid off will be added to the monthly payment. The sum of those payments, plus the primary expense field, should be equal to the Total Payments field.

When the front-end ratio is incorrect or not populated, check the Present Housing Expense located on the Rapid App. Once one of the field ID's 119-126 is completed with values for calculation.

If both DTI numbers are incorrect, make sure that the monthly income is correct. If so, verify that the Total Primary Expense and Total Payments fields are correct.

**Qualifying a Loan**

To determine how Encompass qualifies a loan, go to Knowledge Article 0000001093 How does the Qualifying Rate (field ID 1014) affect a loan? (https://resourcecenter.elliemae.com/resourcecente/knowledgebase.aspx?t=%3Carticle%20#%3E1093)

Please consult with the Underwriting department on any further issues or questions when calculating DTI ratios. Email Underwriting at underwriting@goldstarfinancial.com.

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