How does debt to income (DTI) ratio affect the mortgage payment?


The debt to income (DTI) ratio affects the mortgage payment almost as much as your credit score does. The reason: lenders use the DTI to assess how much of a loan you can afford to pay.

Unlike credit score, the DTI number can be obtained for free. Simply add all your monthly expenses - monthly housing expenses (other mortgages), car and college loans, credit cards (no groceries and utility bills) - and divide by your gross monthly income. The result will be the debt to income (DTI) ratio.

For example, if you and your girlfriend have a combined monthly income of $5650 and your mortgage debt is $1370, car loans amount to $565, credit cards make for $320 and this is all recurring debt of $2255. To get your debt to income (DTI) ratio divide 2255 by 5650 to get 39.91%.

With this DTI you may still get the loan you want but it is likely that you will be charged higher rates. On the whole, lenders want to keep your total DTI below 36%. However, there are loans that will allow for much greater DTI - sometimes stated income loans allow for 60-65%.

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