What is debt-to-income ratio?
Debt-to-income ratio — referred to as DTI — is the percentage of your monthly gross income that goes towards paying monthly debts. To calculate, add up your monthly debts and divide by your gross monthly income. E.g. $3500. (debt) ÷ $10,000. (gross monthly income) = 35% DTI.
How does my DTI affect qualifying for a loan?
DTI is extremely important to a lender because it indicates how much you can afford in monthly loan payments. High debt obligations make the borrower a higher risk because they may be more inclined to miss payments or default on the loan. When applying for a loan, ideally you should have a DTI ratio of 36% or less of gross income.
Does co-signing for a loan affect my DTI?
Yes it does. The loan amount adds the additional balance borrowed to your DTI ratio. Often times, buyers forget about a loan they have co-signed for, and they do not realize it is affecting their credit. We do not recommend cosigning on a loan unless you absolutely have to and you really know and trust the person you are cosigning for.
How does student loan debt affect a my DTI ratio?
Student loan debt is considered an installment loan therefore the minimum amount due each month is what is factored into the DTI ratio. E.g. if you have a $200.00 per month minimum payment due in student loan debt, this amount will be added into your monthly debt obligations.
What are a few ways I can improve my DTI ratio?
We suggest paying down any debt by including additional payments towards the principal each month, even a small amount can help. Additionally, you may consider refinancing or consolidating debt to reduce the interest rate and monthly payment. Lastly, the quickest and easiest way to increase your DTI is to increase your income. This can be done by adding a side job, asking for a raise, or working overtime.