What is a Debt-To-Income ratio?

You may have heard the term debt-to-income ratio, or DTI for short, but what exactly is it and why is it important for you to know as a homebuyer? Simply, it’s a formula that your lender uses to assess the resources you have available to make your monthly mortgage payments.

Your DTI is calculated by dividing your monthly debts by your monthly income. Your gross income before taxes and deductions is typically the amount used by lenders to calculate DTI.

Do you already have your debt-to-income ration in a good place? You can start the journey to owning a new home by applying today!

How does my debt-to-income impact my mortgage approval?

Your DTI ratio determines how much income you have available to pay your monthly mortgage payments. When you have a low DTI ratio, you are more likely to be approved for a mortgage for the purchase of your new home.

Your DTI ratio is a calculation that your lender will most likely perform when assessing how much money they are willing to lend to you, they want to make sure that there isn’t a risk of you not paying on the mortgage. Also, having a high DTI can mean that you may struggle to pay a mortgage and all of your other pre-existing debts.

What is a good debt-to-income ratio?

Typically, lenders consider a good debt-to-income ratio as being lower than 35% and anything 43% or more as being a high score. Some lenders are willing to approve a mortgage with a 43% DTI. However, you would want to have score that’s as low as possible. It’s important to keep in mind that lenders also use other factors to determine loan approval.

How can I work on my DTI ratio?

If you have a high DTI ratio, there are a few things you can do to improve your score. You can tackle this by increasing your income, decreasing your debt, or both. Below are a few practical tips:

●     Pay down more on your monthly debt, this will help to decrease the amount of debt you own

●     Do not add to your debt if possible

●     Try increasing your income with side jobs, part time work, or asking for a pay rise

How can I apply for a mortgage pre-approval?

If you’re ready to start the journey to home ownership then a mortgage pre-approval is a great way to start. It helps know how much you’re likely to get approved for and shows agents and sellers that you’re serious about home ownership. Apply today to start your home ownership journey with Owning.

Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply, contact Owning for current rates and for more information.

All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Owning, Inc. does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Owning, Inc. Owning, Inc. its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action. Owning does not provide tax advice. Please contact your tax adviser for any tax related questions.