You Have Heard The Acronym DTI But What Does It Mean

Dated: 07/05/2016

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johnson city homes

We're so glad you asked! One of the most important elements of your new home loan approval is something known as your "Debt to Income" ratio, or DTI.  By definition, Debt to Income is a calculation of your monthly debt payments divided by your gross monthly income. When you apply for a home loan, your lender will enders calculate your DTI in two ways, and both are important. The first step is adding together all your expected housing expenses (your new mortgage, including taxes and insurance) and divide that by your gross (pre-tax) income. That’s called your front-end DTI. The next step will be the same calculation but include all of your monthly expenses, like minimum payments on credit cards and auto loans. That’s called your back-end DTI. The magic number for DTI? For conventional mortgage loans that are not government insured, lenders generally look for 28% or lower for front-end DTI. For the back end DTI, they look for 36% or lower.

Why is DTI so important in my loan?

As noted above, lenders look closely at your DTI. They use the amount to determine how much money you can borrow, and helps you to get in touch with your finances to really be aware of debt, and just how much home you can afford, and if now is the right time in your financial health to buy a home. While the numbers given above are the general percentages for front end and back end DTI, all hope is not lost of you have greater percentages. Fannie Mae purchases loans from lenders with back-end DTI ratios as high as 45 percent.

So, what if you have a high DTI? There are two leading ways you can reduce your DTI ratio.

1). The first, and the biggie; pay down debt. Even paying a little over the minimum payment each month on accounts will help.

2). Find ways to increase your income, and/or consolidate your debt.

Curious to know your ratio? Call us and let us help you figure your number! Our office number is(423) 433-6517, or come by and let us sit down and explain DTI to you, in simple terms. We're inside Keller Williams Realty, 1033 Hamilton Place in Johnson City. Call us or come by today!

You can also see hundreds of homes for sale on our website. Go here: Homes for Sale in East TN to begin your home search now.

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Rayne Price

Holding a BS in Environmental Science, and MA in Education, real estate was not Shields Team Buyer Specialist Rayne Price's first career choice. It was only after encouragement from his wife and a cl....

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