Remember third-grade math when they taught us about ratios? No? Don’t worry, they’re not too bad. And this is one ratio you definitely want to know because it determines just how much mortgage you get.
Your debt to income ratio, or DTI, is just what it sounds like: it’s your monthly debt compared to your before-tax monthly income. Debt includes things like your mortgage, any loans, credit card payments, basically anything that would show up on your credit report.
For example, your monthly expenses might be $2,000 and your income might be $5,000. Divide the two and you get your DTI: 40%
Lenders like to see a DTI that’s under 36%, with no more than 28% going to your mortgage/housing costs. There’s a little bit of wiggle room here, but most lenders will not give you a mortgage if your DTI is over 43%.
If you’re not quite in that range, you have 2 options:
1. Decrease your debt
2. Increase your income
It’s usually easiest to comb through your monthly budget and get rid of all the unnecessary extras, then use that money towards paying down your debt.
Bonus: paying down your debt will boost your credit score too!
Have any questions about DTI or about getting qualified for a mortgage?
