01/11/2021
Welcome to ๐ This past week, in my Mortgage Prep Program, we discussed DTI. So, why is debt to income ratio so important?
If you are planning a large purchase that requires FINANCING (such as a home purchase), you need to be qualified by a lender. One metric that is used is the debt to income ratio.
๐ง๐ฒ๐ฟ๐บ๐ ๐ฌ๐ผ๐ ๐ฆ๐ต๐ผ๐๐น๐ฑ ๐๐ป๐ผ๐:
โญ๏ธ Gross Monthly Income: Your gross monthly income is your income before taxes and any other deductions. It is not the amount that you receive on your paycheck (net income). Add up all of your income for a one year period (or use your annual salary) and divide that by twelve ( # of months in a year) to determine your gross monthly income average.
โญ๏ธ Monthly Debts: Your debts include mortgage or rent, car payments, student loan payments, minimum payments on credit cards, and any other loan or installment payments reported to your consumer credit report. You do not need to include general living expenses such as utilities, food, gas, etc. in this calculation.
โญ๏ธ Debt to Income Ratio (DTI): Debt to income ratio is the percentage of your gross monthly income that is allocated toward your monthly debt. Add up all of your monthly debts and divide that number by your gross monthly income. You will then have your DTI percentage.
๐ช๐ต๐ฎ๐ ๐ฆ๐ต๐ผ๐๐น๐ฑ ๐ฌ๐ผ๐๐ฟ ๐๐ฒ๐ฏ๐ ๐ง๐ผ ๐๐ป๐ฐ๐ผ๐บ๐ฒ ๐ฅ๐ฎ๐๐ถ๐ผ ๐๐ฒ:
A lender likes to see a debt to income ratio that is ๐ฅ๐๐ฌ๐ฌ ๐ญ๐ก๐๐ง ๐๐% ๐๐ง๐ ๐ง๐จ ๐ฆ๐จ๐ซ๐ ๐ญ๐ก๐๐ง ๐๐%. They may accept one as high as 50%, but lower is always better. The lower your ratio, the less risk you are in the eyes of the lender.
, the lower your ratio, the more likely you are to actually be able to sustain homeownership. I donโt push clients into unaffordable situations. I truly want you to live within your means!
There are two ways to improve your DTI ratio:
โ๏ธEarn more money
โ๏ธReduce your debt
Write down all of your loan balances. Pay off smaller debts first. Next, focus on adjusting payment terms to decrease your monthly payments. Ex: change student loan repayment plan to the lowest monthly payment.
Contact Me Today:
PโLar Pearson, Realtor
๐ฑ214-444-9202
www.plarpearson.com