When you buy a home with a mortgage loan, lenders want to see that you have a debt-to-income ratio of 36 percent or less. There are some exceptions, but this is the “gold standard.”
That means you spend 36 percent or less of your monthly cash on debts and obligations.
The lower your debt-to-income ratio is, the more favorably lenders will look at your financial profile. If your DTI is high, lenders will think that you have too much debt for the amount of income you earn each month – and they may be reluctant to lend you the cash to buy a home because they believe you’ll have a hard time paying it back.
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How to Calculate Your Own Debt-to-Income Ratio
You can calculate your own DTI, which your lender will also do, by:
- Adding up all your monthly debt, including loans, your current mortgage or rent payment, and your minimum credit card payments.
- Dividing your total monthly debt payment by your monthly gross income (the money you make before taxes).
For example, if you pay $1,000 a month in debt obligations (including rent or mortgage payments, car payments, credit card payments and other obligations) and you make $4,000 per month before taxes, your DTI is 25 percent.
If you pay $2,000 a month in debt obligations and make $4,000 before taxes, your DTI is 50 percent.
What if Your DTI is High?
You can take steps to lower your DTI, such as paying off credit cards and loans.
Remember, too, that there are exceptions to every rule. Some lenders will let you borrow money for a mortgage if your DTI is as high as 43 percent – but you may have to meet certain conditions.
Are You Selling or Buying a Home for Sale in Lake City?
If you’re selling a home in Lake City, we’re the local experts. We know how to market your home aggressively and bring in qualified buyers, and we’d love to help you sell quickly and at the right price.
If you’re moving to Lake City, we can help you find the perfect place to live. Call us at 386-243-0124 to tell us what you want from your home and we will begin searching right away.
In the meantime, check out the most popular Lake City home searches by exploring the links below.
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