What is the debt-to-income ratio and why does it matter when you’re planning to buy a house?
Your debt-to-income (DTI) ratio is a percentage that’s calculated by dividing your total monthly debts by your total monthly gross income and is a metric used by lenders when considering your mortgage. It shows them whether or not you have a good balance between what’s coming in versus what’s going out. The magic number is 36% or below for most lenders, otherwise, you may end up paying higher interest on your loan or be denied completely.
If you’re in the market for a new home, but know that your DTI ratio is too high, here are a few steps you can take to actively improve it and increase your chances of getting approved for a loan.
✔️ Find an additional stream of income to supplement your current income
✔️ Lower the interest on some of your existing or recurring debts
✔️Consider applying for a loan forgiveness program
✔️Lower your monthly payment on an existing debt
✔️Cut back on your non-essential spending
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