Understanding Mortgage Terms for home buyers: What is DTI?

by | Dec 29, 2023 | Client Resources

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What is DTI?

DTI stands for Debt-to-Income ratio, and it is a calculation used to assess an individual’s ability to manage debt and make loan repayments. & is one factor used by mortgage lenders to evaluate a borrower’s creditworthiness when considering loan apps.

The Debt-to-Income ratio is calculated by dividing your total monthly debt obligations by your gross monthly income and multiplying the result by 100 to get a percentage. 

>>(DTI = [Total Monthly Debt Payments / Gross Monthly Income] X 100)<<

Total monthly debt payments include:

  • Recurring debts such as mortgage or rent payments
  • Credit card payments, student loans, auto loans, 
  • Any other outstanding loan obligations. 

How a DTI affects you

A lower Debt to Income ratio indicates a lower level of debt relative to income, which is more favorable. A higher Debt to Income ratio may suggest a higher financial burden and a higher risk of defaulting on loan payments.

Different lenders have varying DTI requirements, but in general, a lower DTI ratio, typically below 36% to 43%, is most favorable when applying for a mortgage.

If you need help with understanding how DTI affects you directly and looking for a home for yourself, please reach out and schedule a call with me today!

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