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Debt To Income Ratio

Daniel Cohen
UpdatedMar 22, 2024
Key Takeaways:
  • DTI is your debt to income ratio.
  • A debt to income ratio measures if you can repay your mortgage.
  • Try to keep your debt payments below 29% of your income.

I am applying for a mortgage and want to know what a debt to income ratio is, and what is my DTI number?

I am applying for a mortgage and want to know what a debt to income ratio is, DTI number, and what I need to know to get my mortgage and not have a bad debt to income.

Thanks for your question on debt to income, which indeed is often referred to as a DTI ratio. This is a critical measure that mortgage lenders use to evaluate your ability to make your mortgage payments. I will try to get you some information below on what a debt to income score is and some DTI tips to help you out.

Debt-to-Income Ratio and DTI Definition

Debt-to-Income ratio (DTI) is a comparison of your monthly gross income and your monthly repayment obligations to creditors. For example, if you gross $2000 each month and your debt payments total $500, your DTI would be 25%. When you apply for new credit, potential lenders look at your DTI to determine if you can realistically afford your current debt payments, and if so, how much additional debt you can afford to repay. DTI is one of the most important factors considered by potential lenders, as it is a good indication of your ability to repay the new loan.

There are two types of DTI that most lenders take into consideration. The first is typically known as the front-end ratio, which accounts for a person's housing costs. The housing costs include rent (for non-homeowners). For homeowners it would include the mortgage principal and interest payment, mortgage insurance (if applicable), property taxes, insurance, and (if applicable) homeowner's association (HOA) fees. The second is usually considered the back-end ratio. This consists of all other debt payments such as unsecured debt, auto loans, student loans, legal judgments, child support, alimony, and all items covered in the front-end ratio.

Debt-to-Income Ratio Summary

Every lender determines its own guidelines regarding allowable DTI ratios for new loans. Generally speaking, a combined DTI over 55% is considered very risky, and could make obtaining a new loan difficult. Also, you will usually want to keep your front-end debt to income ratio below about 29%, as a rule of thumb, so don't borrow to buy too expensive of a house if your income cannot support it. Lenders will help you calculate and analyze your debt-to-income ratio to determine the size mortgage you can afford. In fact, your DTI and your loan-to-value (LTV) are frequently the most important numbers that lenders look at when quoting you a mortgage amount and interest rate. When considering to purchase a home or refinance a home you should calculate your DTI to see where you stand. So as you can see, your debt-to-income ratio can tell you a lot about your debt and your chances of qualifying for a mortgage loan.

Debt-to-Income Tips

If you want to identify your overall financial situation and keep your debt in check, you need to establish your debt-to-income ratio. The best thing to do is to keep your debt under control and not to take on too much debt. If you take on too much debt it could hinder your ability to qualify for a mortgage and send your finances plummeting, it could also cause you unnecessary stress if you stretch too much and borrow more than you can comfortably afford each month.

After you calculate your debt-to-income ratio, it's time to discover what your ratio is telling you. If you have a DTI ratio of 10% or less, it means you have a great debt-to-income ratio, meaning your income is significantly more than what you owe. A DTI of about 29% is considered by financial experts as the highest most consumers can handle comfortably. If you have a debt-to-income ratio of 55% or higher, it means you are taking on too much debt in relation to your income. A DTI greater than 55% is considered very risky since it will be difficult to continue to cover your monthly debt obligations with your current income.

Related Topics

To get a free Mortgage Refinance Quote apply with the Bills.com lenders and be sure to check out all of the informative tools and resources available for all of your mortgage needs at Bills.com.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

Mortgage market update: the latest

It is expected that mortgage rates are subject to change. Homebuyers and those refinancing their mortgages should pay close attention to the latest mortgage rate

Mortgage rates February 21, 2024
According to Freddie Mac, the 30-year mortgage rate for the week of February 21, 2024 is 6.9%. This represents a 13 basis points increase from the previous week's rate.
Note: A basis point is equal to one-hundredth of one percent (0.01%). In numerical terms, if the mortgage rate changes by 20 basis points, it means the rate has changed by 0.20%.
According to Freddie Mac, the 15-year mortgage rate for February 21, 2024 is 6.29%. This is a 17 basis points increase from last week’s rates.

What does the mortgage rate mean for you?
Mortgage rates are one of the key factors that determine your monthly payment. Here are avergage interest rates (APR) for February 25, 2024 based on Zillow date for borrowers with a high credit score (680-740) in the United States:

  • 30-year conventional loan is 6.88%
  • 15-year conventional loan is 6.08%
    Using the rates mentioned above, the monthly payment for a $279,082 30-year-year mortgage would be $1,834. A 15-year mortgage would require a monthly payment of around $2,367.

Explore your options and secure pre-approval today!
To make your life easier, we highly recommend shopping around for mortgages and getting pre-approved. This will streamline the home-buying or refinancing process and make it a breeze. Ready to get started? Check Out mortgage rates now for the best options available.

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