What is the Debt-to-Income (DTI) limit for a general Qualified Mortgage?

The Debt-to-Income (DTI) limit for a general Qualified Mortgage is set at 43%. This threshold is a key aspect of the Qualified Mortgage guidelines established by the Consumer Financial Protection Bureau (CFPB). The DTI ratio is a financial calculation that assesses an individual's monthly debt payments against their monthly gross income.

The 43% limit essentially means that no more than 43% of a borrower’s gross income should be allocated to paying debts, including the monthly mortgage payment, property taxes, and other debts like credit cards and car loans. This standard is significant because it helps to ensure that borrowers do not take on more debt than they can reasonably manage, thereby minimizing the risk of default for lenders.

This DTI ratio is crucial for assessing a borrower’s ability to repay a loan and is used widely in underwriting guidelines. Generally, loans that exceed this DTI limit might be deemed risky and fall outside the protections and benefits conferred to Qualified Mortgages, which were designed to promote responsible lending practices.

Understanding DTI is important for both borrowers and lenders as it plays a critical role in the loan approval process and impacts interest rates, loan terms, and the overall affordability of a mortgage.