*disclaimer: Not all individuals will qualify for each loan type and/or scenario. Please contact me to see if you'd qualify for these loan products and/or discuss your options.
When dealing with a mortgage loan officer, there's a good chance that they will bring up the term "DTI" or "Debt to Income Ratio". What do these terms mean? What do they have to do with my loan?
DTI or Debt to Income Ratio is a calculation of the relationship between a borrower's debts and their income. For instance, if a borrower has a $250 car payment, a $2,000 house payment, and a $100 credit card balance, and they make $5,500 a month, this borrower's DTI ratio would be 43%. The way you calculate this number, is by adding together a borrower's debts ($250+$2,000+$100=$2,350). Once you have the total amount spent on debts, you divide that number by the total monthly household income ($2,350/$5,500=.427).
Each loan product has requirements regarding a borrower's DTI ratios. In order to qualify to receive a conventional loan, it is generally required that a borrower has a back end DTI ratio of 45% or lower. For an FHA loan, it is generally required that a borrower has a back end DTI ratio of 43% or lower. USDA and VA loans generally require a back end DTI ratio of 41% or lower.
DTI's are taken into consideration to make sure that a borrower can afford to take on the loan that they are asking for. These numbers help lenders determine the borrower's ability to repay, and helps them determine the risk factor of lending the borrower money for their home.
For More information on DTI ratios and what they mean, please contact me today! I'd love to calculate it for you, and help you get into the home of your dreams!
*disclaimer: Not all individuals will qualify for each loan type and/or scenario. Please contact me to see if you'd qualify for these loan products and/or discuss your options.
Brayden Ramsay NMLS #1997195
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