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Monday, May 20, 2013

The Simple Truth Behind DTI (Debt to Income)

The Simple Truth Behind DTI (Debt to Income)

Debt to Income: what, how and where 

You may have experienced it before - applied for a loan, a credit card, a mortgage or a refinance and told you were turned down due to DTI. You may have even been told a certain percentage and to keep paying and try again later. But, unless you have asked specifically, chances are no one has explained to you exactly what DTI is or where most lenders want you to be.

What is DTI?

DTI, or debt to income, is a factor most lenders take into consideration before approving you for a loan. It is a relatively simple calculation that looks out your outstanding debts to your current income. Debts that are taken into consideration are things like car payments, student loans, child support, mortgage or rent payments, etc.  They will factor the amount you currently pay plus what you are projected to pay to make sure you are a viable risk for that loan.

How do I calculate my DTI?

Let's say that you bring home $3000 a month. You pay out $650 a month in car payments, $100 a month for student loans, and have a current rent of $900 a month. You take your total debt ($1650 a month) and divide it by your salary ($3000) and multiply that answer by 100. In this case your DTI would be 55%. 
However, let's say you are looking to take a loan out for a home that would be paying $1000 a month on. In that case you would replace your $900 rent payment for the $1000 mortgage payment and plug it into the same equation. Your projected DTI is then 58%. 

Where does my DTI need to be to get approved?

This question is a little tricky. Most lenders would like DTI to be at 41% or lower to be approved. However, every individual case is different and will be evaluated with consideration to credit and other factors. Any time you are turned down, down't be afraid to ask and now you can go in a little more confident of what to expect. 

If you have been turned down due to DTI in relation to car loans and are looking to buy a home in the New Braunfels/Kyle/Cibolo/Schertz areas, give me a call! I may be able to help! (830) 237-8463.

I hope this helps! Happy homebuying!