Debt to Income (DTI) ratio
The debt-to-income (DTI) ratio is a key element in helping a lender determine if a party can afford the new loan payment by assessing their capacity to repay the consumer debt. DTI is calculated based on several key elements of a party: gross monthly income versus outgoing expenses.
Financial institutions can configure multiple calculations like Front End DTI, Back End DTI, and Combined DTI and view these results per party or across parties for a consumer loan application.
A low DTI ratio demonstrates a good balance between debt and income. If a party's DTI ratio is 15%, that means 15% of their monthly gross income goes to debt payments each month. Conversely, a high DTI ratio can signal that an individual has too much debt for the amount of income earned each month.
With Q2 Origination, the underwriters can have a single view of all debts, income sources, and the various configured DTIs for an application. This enables the underwriters to make quick decisions and reduce any operational risk of missing out on any debt versus income information. Further, the Q2 Origination displays the repayment capacity/proposed capacity and the DTI, enabling the underwriters to make an informed decision.
This ratio applies to the following loan applications:
Consumer Secured
Consumer Unsecure
Consumer Real Estate
The following table describes the concepts related to debt-to-income ratios in Q2 Origination:
| Concept | Description | Level | Calculation Expression | Formula Used |
|---|---|---|---|---|
| Debt to Income Ratio | ||||
| Combined Debt to Income Ratio | The Combined DTI ratio is computed as the total recurring monthly obligations, such as mortgage, student loans, auto loans, child support, and credit card payments, divided by the gross monthly income (the amount earned each month before the deductions). | Computed at the application level. | Salesforce Expression: ($ApplicationLiabilityQuery.PaymentAmountLiability / ($ApplicationMonthlyIncomeQuery.MonthlyIncome + $ApplicationEmploymentInfoQuery.EmploymentInformation + $ApplicationAnnualIncomeQuery.Income / 12.0)) | (Total Monthly Liability/(Sum of monthly income+ Sum of Employment Income+ Total Annual Income/12)) |
| Proposed Debt to Income Ratio | The Proposed DTI ratio is computed like the Combined DTI ratio; additionally, the repayment amount towards the current loan is also considered as a debt for computations. | Computed at the application level. | (($ApplicationLiabilityQuery.PaymentAmountLiability + $ApplicationQuery.PaymentAmount) / ($ApplicationMonthlyIncomeQuery.MonthlyIncome + $ApplicationEmploymentInfoQuery.EmploymentInformation + $ApplicationAnnualIncomeQuery.Income / 12.0)) | ((Total Monthly Liability Amount+ Payment Amount)/ (Total Monthly Income + Total Employment income + Annual Income/12)) |
| Unsecured debt to income ratio | The Unsecured DTI ratio is computed like the Combined DTI ratio, just that only the unsecured debts are considered for computations. | Computed at the application level. | ($UnsecuredApplicationLiabilityQuery.PaymentAmountLiability / ((($ApplicationMonthlyIncomeQuery.MonthlyIncome + $ApplicationEmploymentInfoQuery.EmploymentInformation) * 12.0) + $ApplicationAnnualIncomeQuery.Income)) | Liabilities considered are: PERSONAL LOAN', 'STUDENT LOAN', 'CREDIT CARD', 'Other Unsecured Installment Loan', 'Other Unsecured Revolving Credit' |
| Front End DTI Ratio | The Front-End DTI ratio, also known as the mortgage-to-income ratio, is a ratio that indicates what portion of an individual's income is allocated to mortgage payments. It is computed as an individual's anticipated monthly mortgage payment/gross income. The mortgage payment generally consists of principal, interest, taxes, and mortgage insurance. Lenders use the front-end ratio in conjunction with the back-end ratio to determine how much to lend. | Computed at the party level. | ($PartyFrontEndLiabilityQuery.PaymentAmountLiability / ($PartyMonthlyIncomeQuery.MonthlyIncome + $PartyEmploymentInfoQuery.EmploymentInformation + $PartyAnnualIncomeQuery.Income / 12.0)) | Liabilities considered are of real estate backed loans |
| Back End DTI Ratio | The Back-End DTI ratio indicates what portion of a person's monthly income goes toward paying debts. It is computed as the total backend debt divided by the monthly gross income. | Computed at the party level. | ($PartyBackEndLiabilityQuery.PaymentAmountLiability / ($PartyMonthlyIncomeQuery.MonthlyIncome + $PartyEmploymentInfoQuery.EmploymentInformation + $PartyAnnualIncomeQuery.Income / 12.0)) | |
| Repayment Capacity | ||||
| Current Repayment Capacity | Repayment capacity of a party as per the current liabilities and incomes. | Computed at the application level. | ((Annual Income / 12)*DTI LIMIT) - Current Monthly Debt Payments | |
| Proposed Repayment Capacity | Repayment capacity of a party considering the liability of the current loan also. | Computed at the application level. | ((Annual Income / 12)*DTI LIMIT) - Current Monthly Debt Payments - Proposed Payment amount | |
Calculate DTI
Prerequisites
Before you begin to calculate DTI, ensure that the following prerequisites are met:
The calculation configuration must be defined for various types of DTI.
Note:To know more about calculation configuration, see Q2 Origination Administration Guide > Configure Calculation Sets.
The dynamic query must be defined for creating the calculation set for DTI calculation.
Note:Dynamic query for DTI:
SELECT SUM(GENESIS__PAYMENT_AMOUNT__C) PAYMENTAMOUNTLIABILITY FROM GENESIS__LIABILITY__C WHERE ( ( GENESIS__CONTACT__C IN ( SELECT CLCOMMON__CONTACT__C FROM CLCOMMON__PARTY__C WHERE ( ( GENESIS__APPLICATION__C = :ID ) AND ( ( CLCOMMON__TYPE__R.NAME IN ('BORROWER' , 'CO-BORROWER', 'COSIGNER') ) OR ( CLCOMMON__PARTY_TYPES__C INCLUDES ('BORROWER' , 'CO-BORROWER', 'COSIGNER') ) ) ) ) ) AND ( ( GENESIS__INCLUDE_FOR_DTI__C = TRUE ) AND ( ( GENESIS__APPLICATION__C = :ID ) ) ) ) )Note:This expression is used to consider all types of liabilities so that if there is a change in any type of liability payment amount, the Combined, Proposed, and Unsecured DTIs are updated.
Steps
To calculate DTI:
Log in to your Salesforce account.
Go to
(App Launcher) > Applications, and select the required application.The application dashboard for the selected application is displayed.
Go to More > Debt To Income.
The Debt to Income Ratio page is displayed.
Enter the details on this page, as described in the following table, and then select Save:
Field Name Information and Action Liabilities Information -
You can perform any of the following actions in the Liabilities Information section:
Add New Liability - To add new liability details.You can add multiple liabilities for a party.
Edit Row - To edit the details of a liability
Delete - To delete a liability
Liability Detail - To view more details about a liability
Note:If the liability details are captured while adding a party, these additional fields are populated. You can edit these fields as well.
Liability Type A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the party. It can be of different types.
Name of Creditor The entity's name or the person who lends money or extends credit to a party. Amount Owing The amount or the sum owed by a party towards the creditor. Payment Amount The amount that a party pays towards debt or liability. Payment Frequency The frequency of the repayment of the debt. Include For DTI The liability for which this checkbox is selected is included in the DTI computations. Current Employment Information -
You can perform any of the following actions in the Current Employment Information section:
- Add New Employment Information
- Edit Row
- Delete
- Current Employment Detail
Employer Name The current employer of the party who is applying for a loan. Start Date Start date of the current employment. Monthly Income Monthly income from the current employment. Other Income -
You can perform any of the following actions in the Current Employment Information section:
- Add New Income
- Edit Row
- Delete
Income Type The source of income other than the current employment. Income Name A user-defined name to the income. Frequency The frequency of the income. Taxable If this checkbox is selected, the income is taxable. Amount The gross income amount. To compute the DTI, select Calculate DTI.
The Debt to Income Ratio and the Repayment Capacity sections are updated.
Combined DTI calculation
| Liability Amounts | Monthly Income | Employment Income | Annual Income | |
|---|---|---|---|---|
| 50,000 | 6,000 | 88,000 | 12,000 | |
| 10,000 | ||||
| 2,000 | ||||
| 200 | ||||
| 300 | ||||
| 200 | ||||
| 300 | ||||
| Total | 63,000 | 6,000 | 88,000 | 12,000 |
Based on the above values and the formula used for calculating Combined DTI:
Combined DTI = 63,000/(6,000+88,000+(12,000/12)) = 0.66
Proposed DTI calculation
| Liability Amounts | Monthly Income | Employment Income | Annual Income | Monthly Payment Amount | |
|---|---|---|---|---|---|
| 50,000 | 6,000 | 88,000 | 12,000 | 1669.4 | |
| 10,000 | |||||
| 2,000 | |||||
| 200 | |||||
| 300 | |||||
| 200 | |||||
| 300 | |||||
| Total | 63,000 | 6,000 | 88,000 | 12,000 | 1669.4 |
Based on the above values and the formula used for calculating Proposed DTI:
Proposed DTI = (63,000+1669.4)/(6,000+88,000+(12,000/12)) = 64,669.4/95,000 = 0.68
Proposed DTI calculation
| Liability Amounts | Monthly Income | Employment Income | Annual Income | Monthly Payment Amount | |
|---|---|---|---|---|---|
| 50,000 | 6,000 | 88,000 | 12,000 | 1669.4 | |
| 10,000 | |||||
| 2,000 | |||||
| 200 | |||||
| 300 | |||||
| 200 | |||||
| 300 | |||||
| Total | 63,000 | 6,000 | 88,000 | 12,000 | 1669.4 |
Based on the above values and the formula used for calculating Proposed DTI:
Proposed DTI = (63,000+1669.4)/(6,000+88,000+(12,000/12)) = 64,669.4/95,000 = 0.68
Unsecured DTI calculation
Liability Amounts | Monthly Income | Employment Income | Annual Income | Monthly Payment Amount | |
|---|---|---|---|---|---|
50,000 | 6,000 | 88,000 | 12,000 | 817.9 | |
10,000 | |||||
2,000 | |||||
200 | |||||
300 | |||||
200 | |||||
300 | |||||
Total | 63,000 | 6,000 | 88,000 | 12,000 | 817.9 |
Based on the above values and the formula used for calculating Unsecured DTI:
Unsecured DTI = (63,000/((6,000+88,000)*2)+12,000) = 63,000/1,140,000 = 0.06
Front End DTI calculation
Liability Amounts | Monthly Income | Employment Income | Annual Income | Monthly Payment Amount | |
|---|---|---|---|---|---|
50,000 | 6,000 | 88,000 | 12,000 | 817.9 | |
Total | 50,000 | 6,000 | 88,000 | 12,000 | 817.9 |
Based on the above values and the formula used for calculating Front End DTI:
Front End DTI = 50,000/95,000 = 0.53
Back End DTI calculation
Liability Amounts | Monthly Income | Employment Income | Annual Income | Monthly Payment Amount | |
|---|---|---|---|---|---|
50,000 | 6,000 | 88,000 | 12,000 | 817.9 | |
| 10,000 | |||||
| 2,000 | |||||
| 200 | |||||
| 300 | |||||
| 200 | |||||
| 300 | |||||
Total | 63,000 | 6,000 | 88,000 | 12,000 | 817.9 |
Based on the above values and the formula used for calculating Back End DTI:
Back End DTI = 63,000/95,000 = 0.66