Your debt-to-income ratio (DTI) is a measure of how much of your monthly income is going towards debt payments. Lenders use DTI to assess your ability to repay a mortgage loan. A lower DTI is generally better, as it shows that you have more disposable income to cover your monthly expenses and unexpected costs.

There are two main types of DTI ratios: front-end (housing) and back-end (total debt). The front-end ratio is the percentage of your monthly income that goes towards your mortgage payment. The back-end ratio is the percentage of your monthly income that goes towards all of your debt payments, including your mortgage, car loans, student loans, and credit card debt.

Most lenders have a maximum DTI ratio that they will accept. This maximum DTI ratio varies depending on the type of loan you are applying for, your credit score, and other factors. However, in general, lenders will look for a front-end ratio of no more than 28% and a back-end ratio of no more than 36%.

If your DTI is higher than the lender’s maximum, you may still be able to qualify for a mortgage, but you may have to make a larger down payment. You may also want to consider a government-backed mortgage, such as an FHA loan, USDA loan or a VA loan, which have more lenient DTI requirements.

Here are some tips for improving your DTI ratio:

• Pay down your debt. The more debt you have, the higher your DTI will be. Make a plan to pay down your debt as quickly as possible.
• Increase your income. If you can increase your income, you’ll have more disposable income to cover your debt payments. Consider another job that pays more, or asking for a raise at work.
• Consider consolidating your debts: If you have multiple high-interest debts, you may be able to consolidate them into a single, lower-interest loan. This can reduce your monthly payments and improve your DTI ratio.

Your debt-to-income ratio is an important factor that lenders consider when qualifying you for a mortgage. By understanding your DTI ratio and taking steps to improve it, you can increase your chances of getting approved for a mortgage and securing your dream home.

If you have any questions about debt to income ratios or would like to get started on your mortgage pre-approval, please contact us.  We are here to help.