Your ability to finance a home purchase often hinges on a metric called a “debt-to-income ratio” (DTI) — a percentage that shows how much of your monthly income goes toward debt payments. A debt-to-income ratio for a mortgage is a key that can open — or lock — the door to homeownership. In this easy-scan post, we provide a simple definition and examples, share how to calculate your DTI ratio, and what percentage you’ll need to buy a house.
Your debt-to-income ratio (DTI) compares your monthly debt payments to your gross monthly income. It’s a percentage that lenders use to assess your ability to handle a mortgage payment alongside your existing financial obligations. There are two types of DTI ratios: Lenders typically focus on your back-end DTI when evaluating your mortgage application. The lower your ratio, the more likely you are to qualify for favorable loan terms. Lenders use your debt-to-income ratio as a risk assessment tool. The idea is simple: if too much of your income is already committed to debt payments, adding a mortgage could strain your finances. Here’s how DTI affects your mortgage application:What is a debt-to-income ratio for a mortgage?
How is a debt-to-income ratio used in a mortgage?
