Debt-to-Income (DTI) is one of the key ratios lenders use to assess and approve loan applications.
Determining your current financial obligations versus your existing earnings is one part of a lending institution’s necessary evaluation of your capability to pay back a loan.
Like the video states: financial obligations are existing monetary obligations; a vehicle payment is a financial obligation while a grocery expense is not.
To compute your debt-to-income ratio, assemble your month-to-month financial obligation payments and divide them by your GROSS regular monthly earnings. (Gross earnings is the money you make BEFORE taxes and other reductions.) The Federally-established debt-to-income target is currently 43% for Qualified Mortgages, although some experts advise aiming for a more conservative figure — less than 36%.
If your DTI is greater than the Federal guidelines, other loans might be available. These may also involve more documentation and data to establish your ability to repay. Rates for these are likely to be different from those offered for Qualified Mortgages.
High debt-to-income ratio puts a property owner at higher threat of challenges to making regular monthly payments. Review your scenario and risks thoroughly if DTI is an obstacle.