DTI and LTV Calculations, Step by Step

Underwriting comes down to two worries: can this person afford the payment, and how much of their own money is at stake. Three ratios answer those questions, and every version of the SAFE exam asks you to compute them.

The Two DTI Ratios

Both ratios divide a monthly cost by gross (pre-tax) monthly income. The only difference is the numerator.

Front-end (housing) ratio

Guideline ~28%

PITI ÷ gross monthly income. Just the proposed housing payment: principal, interest, taxes, insurance.

Back-end (total DTI)

Guideline ~36% · QM near 43%

(PITI + all other monthly debts) ÷ gross monthly income. Housing plus cards, autos, student loans.

Worked example

Gross income $6,000 a month. Proposed PITI $1,500. Car and cards add $600.

Front-end = 1,500 ÷ 6,000 = 25%
Back-end  = (1,500 + 600) ÷ 6,000 = 35%

Where the points are lost

Use gross income, never net. Count only debts that appear on a credit report, plus the new PITI: utilities, phone bills, and insurance copays stay out. A debt with 10 or fewer payments left can usually be excluded. Exam answers built on net income are traps, every time.

LTV and CLTV

Loan-to-value compares the loan to the property. The rule the exam tests relentlessly: divide by the lesser of the sale price or the appraised value.

LTV  = loan amount ÷ lesser(price, appraised value)
CLTV = (all loans against the home) ÷ lesser(price, value)

Worked example

Sale price $310,000. Appraised value $300,000. First loan $270,000, plus a $15,000 HELOC.

Use the lesser value → $300,000
LTV  = 270,000 ÷ 300,000 = 90%
CLTV = (270,000 + 15,000) ÷ 300,000 = 95%

When price and appraisal differ

A sale price higher than the appraisal is bait: the question is testing whether you will divide by the price. Use the appraisal. When the appraisal is higher, use the price. The lender always takes the conservative number.

The 80% Line and PMI

On a conventional loan, LTV above 80% usually means private mortgage insurance. The Homeowners Protection Act controls when it comes off:

Borrower-requested PMI cancellation

HPA, 12 USC §4902(a)

At 80% LTV of the ORIGINAL value, upon written request, with a good payment history and no junior liens.

Automatic PMI termination

HPA, 12 USC §4902(b)

At 78% LTV of the original value, if the borrower is current.

Final PMI termination

HPA, 12 USC §4902(c)

At the MIDPOINT of the amortization schedule if not terminated sooner (borrower current).

The Formulas, on One Sheet

Front-end (housing) ratio

PITI ÷ gross monthly income

e.g. 1,500 ÷ 6,000 = 25%

Back-end DTI

(PITI + all monthly debts) ÷ gross monthly income

e.g. (1,500 + 600) ÷ 6,000 = 35%

LTV

loan amount ÷ lesser(price, appraised value)

e.g. 270,000 ÷ 300,000 = 90%

CLTV

(all loans) ÷ lesser(price, value)

e.g. (270,000 + 30,000) ÷ 300,000 = 100%

Max housing payment (28%)

0.28 × gross monthly income

e.g. 0.28 × 8,000 = $2,240

Gross monthly income (salary)

annual salary ÷ 12

e.g. 72,000 ÷ 12 = $6,000

Gross monthly income (hourly)

hourly × 2,080 ÷ 12

e.g. 25 × 2,080 ÷ 12 = $4,333

Questions People Ask

Do you use gross or net income for DTI?

Gross, always: income before taxes and deductions. Using take-home pay is the single most common calculation error, and the exam writes a wrong answer for it on purpose.

Which value do you use for LTV when the price and the appraisal differ?

The lesser of the sale price or the appraised value. On a refinance there is no sale price, so the appraised value stands alone.

What counts as debt in the back-end ratio?

The proposed PITI plus recurring debts that appear on a credit report: car loans, credit card minimums, student loans, other mortgages. Living expenses such as utilities and phone plans do not count. Installment debts with 10 or fewer payments remaining can usually be excluded.

At what LTV does PMI come off?

A borrower can request cancellation at 80% LTV of the original value with a good payment history. It terminates automatically at 78% if the borrower is current, and at the midpoint of the amortization schedule no matter what.