September 22, 2013

DTI & What You Need to Know about it Before Purchasing a Home

If you have ever purchased or sold a home,  you are probably familiar with the term DTI or Debt to Income Ratios. You have most likely discussed it with your lender and if you're purchasing a Co-op your Realtor definitely should have discussed it with you at the beginning of the process.

However, if you are unfamiliar with the term and are considering your first home purchase and....
  • You earn a good salary
  • You have worked hard, scrimped and saved all available extra money
  • You have given up your daily latte
  • You even brown bag it for lunch
  • You regularly check your credit score and pay everything early or on time

You have diligently done all or most of the above in order to save the down payment and closing costs required to purchase a home.  However, despite your best intentions there's one more thing you may not have considered which could possibly come between you and your dream of home ownership.... and that is your DTI.

So you ask, what is DTI? and how does it impact my ability to purchase a home?

DTI has everything to do with your ability to obtain a home loan.  So if you are considering the purchase of a home now or in the near future, it is not only critical that you have a clear understanding of DTI but more importantly, knowing your own Debt to Income Ratio.

What is DTI or Debt to Income?
DTI, or “Debt to Income” ratio, is a borrower’s total monthly debts, including the proposed mortgage payment, divided by their gross monthly income

What you need to understand about DTI or Debt to Income?
While there is no maximum debt ratio to serve as a guide, it is rare that borrowers get approved with a DTI greater than 45%.  In summary, you can have enough income to qualify for a mortgage and still be denied a loan if your regular debt payments—including the 28% that is acceptable for PITI—are more than 36% of your total income.
When considering the purchase of a cooperative apartment, the required ratios are often more conservative.

Having a Realtor who is knowledgeable about this aspect is a critical component of the home buying process.  It can be the difference between being granted Board Approval and being Denied.

Total Monthly Debt = The minimum payment due each month including your mortgage payment.  In the case of a cooperative purchase, monthly maintenance should also be included in this equation.

Now that you have a better understanding of DTI - speak to your lender and Realtor to determine your DTI, improve your DTI if necessary and move closer to your dream of home ownership.

1 comment:

  1. This is so true, no matter what your income. Debt to Income can be the "Deal Breaker"

    ReplyDelete