DTI Cutoffs

The Enhanced Loan Amount Adjustment for Debt-To-Income Ratio (DTI) Cutoff requires the variables Monthly Payments Before New Loan Payment, New Loan Payment, Combined Gross Monthly Income (GMI), and Debt Ratio With New Loan (as "DTI").

How To Calculate DTI

The Monthly Payments Before New Loan Payment (Monthly Payments) is the sum of all payments from the application and the credit report for both applicants less any duplicate trades found on both credit reports. DTI is calculated by dividing the sum of the Total Monthly Payments and the New Loan Payment (less any trade in payment) by the Combined Gross Monthly Income.

(Monthly Payments + New Loan Payment - Trade-In Payment) / GMI = DTI

For example, if the Monthly Payments are $2,000, the New Loan Payment is $600, there is no trade-in, and the GMI is $5,000, then the DTI is 52%.

($2,000.00 + $600.00 - $0.00) / $5,000.00 = .52

Applying the DTI Cutoff

The DTI Cutoff is the maximum DTI allowable. When the DTI is greater than the DTI Cutoff, the Approved Loan Amount must be reduced. First, we determine the Maximum Payment by subtracting the Monthly Payments from the product of the DTI Cutoff and the GMI.

(DTI Cutoff x GMI) - Total Monthly Payments + Trade-In Payment = Maximum Payment Amount

For example, if the DTI Cutoff is 50% (or .50), GMI is $5,000, the Monthly Payments are $2,000 and there is no trade-in, then the Maximum Payment is $500.00.

(.50 x $5,000.00) - $2,000.00 + $0.00 = $500.00

The Maximum Payment becomes the "new" New Loan Payment.

Next, we calculate the new Approved Loan Amount using the New Loan Payment (Maximum Payment from above), Approved Term, and Approved Rate. This is done using the standard amortization formula. Assuming a Term of 60 months and a Rate of 11.15%, the loan amount is reduced to $22,917.70 with a New Loan Payment of $500.00 and a DTI of 50%.

NOTE: Whenever the Approved Loan Amount has been reduced by the DTI Cutoff or the PTI Cutoff, Decision Manager will automatically run the new Approved Loan Amount through the Term and Rate processes to ensure that this new loan amount still qualifies for the Term and Rate assigned. If the Approved Term or Approved Rate is modified, the New Loan Payment is recalculated. Since the payment will be greater if either the Term or the Rate increase, the DTI and PTI processes will be rerun to ensure that the new ratios are still within the cutoffs assigned.