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Debt To Income Ratio And Reserves


Debt to Income Ratio (or D.T.I.)is a lending industry term used to describe a borrower’s monthly debt load compared to their monthly income. This ratio is used to determine if the borrower can afford their monthly mortgage payment.

In most cases a bank will allow up to 40% D.T.I. Meaning, considering your potential monthly mortgage and maintenance/real estate taxes, credit card debt, car payment, student loans, child support or alimony, etc these monthly payments should not exceed 40% of your gross monthly income. New York City Co-ops typically have more stringent guidelines. They usually allow no more than 20-30% D.T.I.

Now, You may be asking yourself, “how does a Co-op calculate my debt to income ratio?” Your Co-op purchase application will ask you to disclose your potential monthly mortgage and maintenance, credit card debt, car payment, student loans, child support or alimony, etc. Then they will cross reference these figures with your credit report to ensure that all possible monthly debt is accurate and accounted for. They will review your Pay stubs, bank statements, employment letter, W-2’s, Tax Returns, and 1099’s to determine your monthly income. They will then run a simple calculation. We can help you estimate this figure prior to the submission of your purchase application in order to save you the time and potential heartache of not qualifying for that dream home.

In terms of how a mortgage professional may calculate your D.T.I., we can help you estimate this figure but you will need to contact a trusted mortgage professional to determine the exact figure. We are always happy to refer a mortgage professional from our network of trusted service providers for you to speak with.

Lastly, it’s important that you remember, during the purchase process, try to minimize the purchases you make. Especially ones that could result in greater monthly debt. This could adversely affect your D.T.I.

Here’s a few examples of the debt to income formula:

Calculating a 25% DTI

Monthly Income: $6,000

Monthly recurring debts : $500

Monthly housing payment : $1,000

Calculating a 40% DTI

Monthly income : $10,000

Monthly recurring debts : $1,500

Monthly housing payment : $2,500


Reserves, are the eligible assets remaining after the closing.Typically home buyers expect to save up a down payment and then assume they are prepared to qualify for a mortgage or Co-Op/Condo approval. Not so. In New York City most Co-ops will require 2-24 months of mortgage payments and common charges or maintenance in liquid asset reserves post-closing. This is one of the most common obstacles for home buyers to overcome.

Some “elite” co-ops will calculate your reserve requirement as a factor of the purchase price. For instance, if a 5th avenue co-op purchase price is $5 million, the board could require a factor or 3-5x the purchase price be in reserve post closing. Meaning, in this example, post closing/down payment, you would need $15-$25 million dollars in liquid asset reserves.

Here’s an example of how reserves are typically calculated:

Monthly Mortgage Payment


Monthly Maintenance/Real Estate Taxes


Number of Months Required


Amount of Liquid Assets Required In Reserve

In order to be prepared, contact The Cunard Team and discuss the type of property you’re considering and we will be able to estimate the purchase price, potential monthly maintenance /taxes, and estimate your required liquid reserves (over and above your down payment) that should be prepared for the purchase process.

THINKING OF BUYING?   Our buyers guide is a great place to start.