What is DTI?

“What is DTI?” is a frequently asked question by people researching their first mortgage. DTI is short for “Debt to Income Ratio.”  DTI is a metric used by all lenders to determine income eligibility.  This is where they take all of your housing and credit expenses (such as total projected house payment, credit payments, car payments, etc) and contrast those to your monthly gross income.  For example, if your house payment will be $1,000 total (including principal, interest,  property taxes and homeowners insurance), and you have another $500 in auto loan and credit card payments, then your total debt to be calculated is $1,500.  If your monthly gross income is $3,000, then your DTI is 50% (debt/gross income = DTI).  Typically, preferred DTI ranges are in the 30’s.  As you go up in DTI, your loan options begin to reduce, and more importantly, your interest rates could go up.  All that said, mortgage rates and approvals are far from a simple formula science.  If your credit score is high, then you may be able to get approved for a great loan even if your DTI is in the 40’s or even the low 50’s!  It’s all a matter of a mixture of all of the factors.  But generally speaking, be aware that the lower your DTI, the better options you’ll have.


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