Wondering how financially prepared you are for owning a home?
Before working in real estate, I didn’t understand all the lingo. Things like “debt-to-income ratio (DTI)” would rattle around in my head. But let me tell you, now I know that understanding your DTI is like having a secret weapon in your home-owning journey.
Simply put, your DTI is the percentage of your gross monthly income that goes to paying your monthly debt payments. It’s a tool that lenders use to evaluate how much additional debt you can handle.
Understandably, calculating your own DTI might sound like a daunting task. That’s why I encourage you to check out my comprehensive 90 Days to Homeowner guide. You’ll find a handy DTI calculator to take the guesswork out of your calculation.
For now, here are a few DTI thresholds to know:
• Over 50%: You have a high level of debt. Consequently, lenders might hesitate to approve a mortgage loan because adding more debt to your plate is risky.
• 43% to 50%: This is also a high debt level, but you may be able to make it work. You should, however, strive for a lower ratio for better rates and financial security.
• 36% to 41%: Now you’re on your way. With a DTI in this range, you’ve got a good balance between debt and income, and lenders are more likely to give you a thumbs-up for a loan.
• Below 36%: Congrats! You’re in the gold standard zone. With debt levels hovering here, you’ll have access to new loans or lines of credit.