Calculating DTI [Debt to Income ratio]

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Topic Author
harvestmoon
Posts: 40
Joined: Mon Sep 06, 2021 1:23 am

Calculating DTI [Debt to Income ratio]

Post by harvestmoon »

Hi Bogleheads! I've been trying to figure out my personal Debt to Income ratio and I have a little bit of confusion as to what to include for the actual debt portion...how do I include the following 3 costs...

1. HOA fees (I currently live/own my condo; I'm curious about this bec I have read to only include debts/payments that appear on your credit report and this doesn't show up as a line item on any of my credit reports).

2. Auto insurance and Personal Property insurance - or only home owners insurance? (Also, similar to HOA fees I'm curious about this bec these also do not show up as line items on any of my credit reports).

3. Mortgage taxes - my taxes are currently paid from an escrow account so do I just include my monthly total mortgage payment (which would include: principal, interest and escrow)?

Also, curious, do you all calculate your DTI monthly? For people that have income amounts that can change from month to month I would think you would need to do it on a monthly basis?

Thank you all! I feel like you all always give such good advice!
Parkinglotracer
Posts: 3948
Joined: Fri Dec 20, 2019 2:49 am
Location: Upstate NY

Re: Calculating DTI

Post by Parkinglotracer »

I know it’s going to sound simple but I’d start with dividing my debts by my income. Don’t include hoa, insurance, and taxes - include debts (not monthly or annual expenses).

If your income is lumpy I’d include my income for the year or average annual income over last few years.

Not an exact science as we know.
Topic Author
harvestmoon
Posts: 40
Joined: Mon Sep 06, 2021 1:23 am

Re: Calculating DTI

Post by harvestmoon »

Ah okay, that's a good idea, thank you!
will86
Posts: 101
Joined: Tue Apr 18, 2023 8:47 pm

Re: Calculating DTI

Post by will86 »

harvestmoon wrote: Sun May 28, 2023 11:01 am I have read to only include debts/payments that appear on your credit report and this doesn't show up as a line item on any of my credit reports
for what purpose are you making the calculation?
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FiveK
Posts: 15742
Joined: Sun Mar 16, 2014 2:43 pm

Re: Calculating DTI

Post by FiveK »

harvestmoon wrote: Sun May 28, 2023 11:01 am Thank you all! I feel like you all always give such good advice!
Don't know if this will be good advice, but for what it is worth:
- don't bother calculating DTI
- do bother calculating (and categorizing, at least roughly) annual expenses
- do bother estimating (roughly) your cash flow after retirement, and your invested balances (traditional, taxable, and Roth) at retirement

The two in the last line can help with
- where you will stand with regard to Safe withdrawal rates
- an informed guess at which of Traditional versus Roth contributions are likely to be a better choice for you now.

The Excel toolbox mentioned in your effective tax rates topic might also be useful for the purposes above.
toddthebod
Posts: 5737
Joined: Wed May 18, 2022 12:42 pm

Re: Calculating DTI

Post by toddthebod »

harvestmoon wrote: Sun May 28, 2023 11:01 am Hi Bogleheads! I've been trying to figure out my personal Debt to Income ratio and I have a little bit of confusion as to what to include for the actual debt portion...how do I include the following 3 costs...

1. HOA fees (I currently live/own my condo; I'm curious about this bec I have read to only include debts/payments that appear on your credit report and this doesn't show up as a line item on any of my credit reports).

2. Auto insurance and Personal Property insurance - or only home owners insurance? (Also, similar to HOA fees I'm curious about this bec these also do not show up as line items on any of my credit reports).

3. Mortgage taxes - my taxes are currently paid from an escrow account so do I just include my monthly total mortgage payment (which would include: principal, interest and escrow)?

Also, curious, do you all calculate your DTI monthly? For people that have income amounts that can change from month to month I would think you would need to do it on a monthly basis?

Thank you all! I feel like you all always give such good advice!
If you want to know how lenders do it, you add up everything that appears on your credit report and divide by your pre-tax gross income (before any taxes or deductions.)
Topic Author
harvestmoon
Posts: 40
Joined: Mon Sep 06, 2021 1:23 am

Re: Calculating DTI

Post by harvestmoon »

I really enjoy reading the different replies and perspectives. As someone who is not a very savvy investor, but trying to learn, it really helps for me to read all of these responses.
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