Calculating your DTI is relatively simple. You only need to include regular and recurring expenses in your debt calculation. Your debt obligations might include: You don’t need to include things like grocery expenses, utility bills and taxes. After you calculate your total monthly debts, divide your debt obligation by your total pretax household income. Divide by 100 and you have your DTI as a percentage. As an example, let’s say your total monthly debts equal $2,000 and your monthly household income is $5,000 before taxes. To find your DTI, all you need to do is divide $2,000 by $5,000. In this example, your DTI is 0.40, or 40%. Lenders don’t like loaning money to borrowers who already have a lot of debt. A high DTI means you’re less likely to pay back your loan. As a general rule, lenders like to see that you have a DTI of 50% or less before they’ll issue you a loan. If your DTI is greater than 50%, you’ll have a tough time finding a loan. You may want to take some time to reduce your debt before you apply for a mortgage. If your DTI is below 50%, look at what percentage of your budget you’re currently spending on housing. As a general rule, you shouldn’t spend more than about 33% of your monthly gross income on housing. If you choose to spend over that amount on your mortgage each month, you run the risk of becoming what’s known as house poor, which is when you spend a large portion of your monthly income on your home. Now that you know your DTI, you can get a good idea of how much you can afford to pay monthly for your mortgage with a few simple calculations. In the example above, we saw that your DTI was 40%. If your ratio is approaching 50% (like in this example), you’ll want to keep your housing expenses close to what you’re paying now. Keep in mind that your rent doesn’t include other costs associated with owning a home, like insurance and taxes. This means you’ll likely end up taking a payment that’s below what you’re currently paying in rent to stay at the same DTI. If you have less debt, you can be more flexible. For example, let’s say your monthly debts equal $2,000 but your income is $8,000 gross. This puts you at a 25% DTI, which is great. In this instance, you can afford to take on more debt. Let’s say you want to keep your DTI at or below 35%. To consider how much you can afford in a mortgage payment, multiply your comfortable DTI by your gross monthly income. For example: $8,000 × .35 = $2,800 Ideally, you’ll want to spend a total of around $2,800 per month on your mortgage payment. This will keep you around your ideal DTI.How To Calculate Your DTI
What DTI Lenders Are Looking For
Using Your DTI As An Indicator
