Insights on Debt-to-Income Calculations for Mortgage Loans

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Today Doug Crouse dives into debt-to-income calculations. For those with a straightforward employment contract and a base income, it's fairly simple. However, sign-on and quarterly bonuses typically don't count unless you have a two-year history.

For 1099 income, if you have a set hourly rate, it's easy to calculate, similar to W-2 borrowers. But if your 1099 income is variable, a two-year history is required. Most lenders cap debt-to-income ratios at 43-45%, and for doctor loans, mine is set at 45%. This ratio is based on gross income minus items on your credit report, such as car payments, student loan payments, and credit card minimums, but excludes health insurance, daycare, and utilities.

For example, with a $20,000 monthly income, 45% is $9,000. Subtract $1,000 for debt payments, leaving $8,000 for your maximum mortgage payment.

For complex income situations, it's crucial to consult with an underwriter for an accurate assessment. Even with my 25 years of experience, only an underwriter's evaluation counts. So, always get a full loan pre-approval before house hunting, especially if your income isn't straightforward.