Cracking the Code: Understanding Your Debt-to-Income Ratio

Let's face it, debt is a reality for most of us. But how much debt is "too much"? That's where the debt-to-income (DTI) ratio comes in. It's a crucial number that not only helps lenders assess your loan eligibility but also gives you a clear picture of your financial health.

Think of your DTI as a financial fitness score. It measures the percentage of your gross monthly income that goes towards paying off monthly debt obligations. This includes things like student loans, car payments, credit card minimums, and mortgages.

Why is your DTI important?

• Loan approvals: Lenders use your DTI to assess your ability to repay a loan. Generally, a lower DTI (ideally below  36%) indicates better financial health and increases your     chances of loan approval, potentially with favorable interest rates.
• Financial awareness: Knowing your DTI helps you understand how your debt impacts your overall financial well-being. It allows you to make informed decisions about borrowing, budgeting, and saving.
• Debt management: Having a high DTI can be a wake-up call to reconsider your spending habits and develop a debt management plan.

Ready to calculate your DTI? It's easier than you think!

Gather your information: List all your monthly debt payments (excluding rent/mortgage utilities). Find your gross monthly income (before taxes and deductions).

Do the math: Divide your total monthly debt payments by your gross monthly income and multiply by 100 to express it as a percentage. For example, if your monthly debt payments are $1,500 and your gross monthly income is $5,000, your DTI would be (1500 / 5000) * 100 = 30%.

Understanding your DTI: Once you have your number, take some time to research "good debt-to-income ratio." This will help you understand where you stand and what steps you might need to take to improve your financial health.

Remember, your DTI is just one piece of the financial puzzle. It's important to consider your overall financial goals, spending habits, and future plans when making informed financial decisions.Every situation is different, and we have loan programs for many different situations, even if you do not fit into the “ideal”  debt to income, that does not necessarily disqualify you.

There are many factors that go into a mortgage, our originators deal with several unique scenarios, reach out to us and lets discuss your specific goals.