What is DTI? Debt-to-Income ratio.
It means a lot when you are trying to qualify for a home loan!
The amount of your monthly debt obligation (credit cards, auto loans, student loans, child support, etc.) is divided by the amount of your gross monthly income (prior to any deductions), which gives you a percentage. For instance:
Monthly debt obligation: $850
÷ Gross monthly income: $6750
= DTI: 0.1259 or 12.6%
When qualifying for a home loan, a safe upper limit for DTI is 43-45%. Some loan programs will allow up to 50% or even more, but you’ll likely have a higher interest rate.
You should always evaluate your own comfort in DTI, and buy a house that won’t saddle you with a monthly payment you really can’t afford. No one knows your own personal finances better than you do, and even though the guidelines allow debt payments up to 45% or 50% of your gross monthly income, that certainly doesn’t mean you have to max out that limit!
Be wise with your money, and ask us for all the scenarios that are possible for you, so you can choose the right loan, down payment amount, interest rate and other factors.