Debt-to-Income Ratio Nowadays. . It's Just as Important as Your Credit Score When Buying a New Home
Your debt-to-income ratio (DTI) is a simple way of calculating how much of your monthly income goes toward debt payments. Lenders use the DTI to determine how much money they can safely loan you toward a home purchase or mortgage refinancing. They simply want to know that you can handle the mortgage payment and not be in stressed out every month coming up with the money.
Just a few years back . .everyone knows that their credit score is an important factor in qualifying for a loan. But now, there is one element as important and needs if you want to qualify for a loan;
Your Debt-To-Income-Ratio
Most lenders usually apply a standard called the "28/36 rule" to your debt-to-income ratio to determine whether you're loan-worthy. This number is not always set in stone but it is a good benchmark of what lenders are needing these days.
The first number, 28, is the maximum percentage of your gross monthly income that the lender will allow for housing expenses. The total includes payments on the mortgage loan, mortgage insurance, fire insurance, property taxes, and homeowners association dues. This is usually called PITI, which stands for principal, interest, taxes, and insurance.
The second number, 36, refers to the maximum percentage of your gross monthly income the lender will allow for housing expenses PLUS recurring debt. When they calculate your recurring debt, they will include credit card payments, child support, car loans, and other obligations that are not short-term.
The most important factor for you to realize is that too much debt can ruin your chances of qualifying for a home mortgage.
Plan ahead, get all the facts and finally buy your dream home.
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