Your Debt-to-Income Ratio Calculation

Your debt-to-income (DTI) ratio is an important factor when applying for a mortgage or refinance. Not only does it play a role in your ability to qualify, but it can also influence your interest rate and the long-term costs of your loan.

All kinds of debts are taken into account when calculating your debt-to-income ratio: revolving debts, installment debts and more.

Are you planning to apply for a mortgage soon? Here are the monthly debts you can expect to play a role in your application.

• Revolving Debts: These are debts that often change from month to month, like credit cards, home equity lines of credit (HELOCs) and other credit lines. They can play a big part in your DTI and ability to afford a mortgage.
• Government or Court-Ordered Debts: If you have any of these recurring payments, such as child support or alimony, they are considered part of your overall debt.
• Installment Debts: These debts come with regular installment payments — think auto, personal and student loans. These may be a large portion of your debt-to-income ratio.
• Mortgage Debts: Your expected primary mortgage payment (plus monthly property taxes, insurance and interest) will become part of the equation when considering affordability. If you have other mortgages from investment properties, then those will be factored in as well.

It’s a good idea to take a look at your monthly payments before you apply for mortgage preapproval so that you can make improvements to your finances if necessary.

Want to learn more about qualifying for a mortgage or talk through any financial concerns you might have? Get in touch today.