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All About Debt To Income Ratio (DTI): Credit, Calculating DTI & The Home Buying Process - YouTube
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One of
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the most important factors
in qualifying for a mortgage
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and ultimately finding the best mortgage
product for you and your homebuying
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journey is your debt to income ratio
or as we refer to it, your DTI
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welcome to the Fairway
mid-Atlantic YouTube channel.
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If you're new here, welcome.
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If you've been here before.
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Welcome back.
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Either way, I absolutely love for you.
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Hit it to hit that subscribe
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eaten right down below
so you don't miss another video from us.
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Our goal is to give you the tools
you need to start your journey
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towards homeownership.
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We post a new video every Friday
all about the home buying process.
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The real estate and mortgage industry
is personal finance and so much more.
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A couple of weeks ago,
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we did a deep dove on credit
and how it affects the mortgage process.
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We talked about
what makes up your credit score,
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how your credit score could be positively
or negatively impacted,
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and how it factors
into creating your final mortgage picture.
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It's incredibly important to get familiar
with your personal financial picture
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because as we've mentioned
before, buying a home is likely
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the largest financial investment
you will ever make.
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So let's talk more about what
your debt to income ratio is
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and how it affects the mortgage process.
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What is DTI?
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Debt to income ratios or DTI
is a calculation that your mortgage lender
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will use to help you qualify for your home
financing.
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It's a percentage that describes
how much money you spend
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paying monthly debts versus
how much money you are earning.
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Your lender calculates this
by dividing your monthly
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debts, the debts
that would show up on your credit report
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by your gross monthly
income that your income pretax.
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When you apply for your mortgage,
your loan officer is evaluating
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your entire financial picture to determine
if you are realistically able
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to buy a home and pay back
the mortgage on it.
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Lenders operate based on risk,
and the lower your DTI,
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the more confident the lender can be in
your reliability as a borrower.
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But what is a good debt to income ratio?
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Well, good is all relative.
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Maximum
DTI can vary from program to program
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but a good rule of thumb
is that your DTI should never exceed 45%.
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As we've talked about before in our video,
all about loan products
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which will pop up cards you right here.
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Each loan product comes with its own set
of guidelines for qualification.
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This means that each product
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has a different max
DTI allowed to qualify for the program.
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For more information on mortgage products
and which might be the right fit for you.
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Head to our website, Fairway
and Atlantic.com.
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To browse through all of the available
options to you as a home buyer.
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But don't think you have to navigate it
alone.
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Your loan officer will help.
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While 45% DTI may be approvable,
it is more important
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to ensure that you are comfortable
with your monthly mortgage payments.
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You do not want to be in a situation
where you're house rich but cash poor.
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You also want a budget for savings, future
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purchases, college educations, etc.
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ensuring that you keep your new monthly
housing payment DTI in a range
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that allows you to continue to save for
the future is extremely important.
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But how do you calculate your own DTI?
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While you certainly do not need to know
how to calculate your DTI like your loan
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officer, well, it can be beneficial
to roughly know where your DTI stands,
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but before
starting the homebuying process,
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as a consumer
you can easily calculate your DTI
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by determining what accounts show up
on your show up on your credit report.
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Mortgage loans auto loans, credit card,
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minimum payments,
personal loans, student loans, etc.
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and dividing that total by your gross
monthly income
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you do not want to include
recurring expenses like your utility bill,
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savings account contributions,
or retirement contributions.
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You only want to include those expenses
that are recurring,
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required, and regular
to determine your minimum monthly payment.
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Let's look at an example to start.
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Let's say you make $54,000 per year
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or $4,500 per month for debt.
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You pay rent, which is 1200 dollars
monthly Student loans,
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which are $300 monthly.
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A car payment, which is $150 a month,
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and your minimum credit card
payment is $200 monthly.
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You add it all together
and your debt equals $1,850 per month.
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Now you divide your minimum
monthly payment
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by your gross monthly income and convert
that to a percentage to find your DTI.
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So $1,850 divided by $4,500
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goes 0.41 or 41% DTI.
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This is an easy way to get an idea
of what your DTI is going into the home
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buying process, but your loan officer
will do the official calculations
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to determine the best mortgage product
available for you.
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This is just another aspect
of your financial picture
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that plays a role in determining
your final mortgage product.
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Getting comfortable with your finances
and understanding your specific situation
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will give you more clarity and confidence
in choosing the right home
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and financing for you.
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If you are ready to start the home
buying process or want to learn
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more about DTI or credit or anything else
involved, head to our website Fairway
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Atlantic Dot com today and contact
one of our loan officers.
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Thank you so much for joining me today.
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I hope this video give you just a little
more insight into the mortgage process.
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Leave a comment down below
or give this video
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a big thumbs up
if you want to see more videos like this.
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And again, we'd love
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for you to subscribe to our channel
so you don't miss another video
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Thank you so much
and we'll see you next week.
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