How is DTI calculated? DTI and LTI - What's the difference?

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Anwar
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Joined: Tue Sep 17, 2019 7:31 pm

How is DTI calculated? DTI and LTI - What's the difference?

Postby Anwar » Tue Sep 17, 2019 7:36 pm

Hi, I’m trying to determine whether or not my debt-to-income ratio is acceptable to lenders. I have a couple of questions, how is DTI calculated?
And what’s the difference between the loan to income ratio and DTI?

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Otto Dargan
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Re: How is DTI calculated? DTI and LTI - What's the difference?

Postby Otto Dargan » Tue Sep 17, 2019 8:22 pm

Hello Anwar. Welcome to the forums.

Debt-to-income (DTI) ratio is a borrower’s total debt divided by their total income.
DTI ratio is calculated as follows: total debt (including the new loan limit) / total income = DTI ratio

For example, 400,000/ 80,000 = The DTI ratio is 5.

A DTI ratio of six or higher is considered higher risk and your application will be declined or scrutinised closely.

The DTI ratio gives a clear understanding of a borrower’s complete financial picture whereas, a loan-to-income ratio (LTI) assesses a customer’s ability to manage their home loan only.

LTI is calculated as the total home loan requested in the application divided by their gross (before tax) annual income.
For example, if you were looking for a $200,000 loan with a $50,000 income, the LTI ratio will be 4. Both metrics play a role in a bank’s assessment of your loan application.

Do you have a high DTI ratio?
Our mortgage brokers are credit experts and are up to date on the credit policies of almost 40 lenders on our panel.
We can help if you have a high DTI.

Give us a call on 1300 889 743 or fill in our free assessment form to find out if you qualify for a home loan with a high DTI ratio.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Anwar
Posts: 3
Joined: Tue Sep 17, 2019 7:31 pm

Re: How is DTI calculated? DTI and LTI - What's the difference?

Postby Anwar » Tue Sep 17, 2019 8:41 pm

Thanks for clarifying. I’m a self-employed borrower (sole trader) should I use after-tax income or gross for the calculation?
How much of my rental and dividend income can I use?
And are all liabilities to be accounted for in the DTI calculation?

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Otto Dargan
Mortgage Specialist
Posts: 7728
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: How is DTI calculated? DTI and LTI - What's the difference?

Postby Otto Dargan » Tue Sep 17, 2019 8:59 pm

Hi Anwar,

For self-employed borrowers, the income to be used for the DTI calculations is net profit before tax after acceptable add-backs. Yes, you can use the full gross (unshaded) rental and dividend income before tax.

As for the liabilities part for the DTI calculation, the total of all loans including the new loan are to be used. Examples of debt to include are home loans, personal loans, credit cards, overdraft, tax debts etc.

Only contingent liabilities are excluded such as:
  • HECS/ HELP debts
  • Lease and hire purchases
  • Company, partnership and trust liabilities.
Contingent liabilities are excluded.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

Anwar
Posts: 3
Joined: Tue Sep 17, 2019 7:31 pm

Re: How is DTI calculated? DTI and LTI - What's the difference?

Postby Anwar » Wed Sep 18, 2019 11:56 am

Thanks, one final question, are business loans to be included in the liabilities for this calculation?

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Otto Dargan
Mortgage Specialist
Posts: 7728
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: How is DTI calculated? DTI and LTI - What's the difference?

Postby Otto Dargan » Wed Sep 18, 2019 12:10 pm

Hi Anwar,

Yes, personal and business loans for sole traders will need to be included in the DTI calculations.

In addition, for revolving credit such as credit cards and overdraft, the full limit is to be used irrespective of the balance.

So say you have a $10,000 cc with $1,000 balance (used) and an overdraft facility with a $20,000 limit which you haven’t utilised yet. Regardless, for the DTI calculation, the full $30,000 will be used as your debt.

We recommend you speak with one of our mortgage brokers before submitting your home loan application as they are credit experts and not just salesmen.
With almost 40 lenders on our panel, we can work with you to get you the amount you need.

Give us a call on 1300 889 743 or fill in our free assessment form to find out if you qualify for a home loan.

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts


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