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Debt to Income Ratio for a Mortgage

By Melissa Green | Citizens Bank Staff

Your debt-to-income ratio, or DTI, can play a large role in your ability to qualify for a mortgage. It’s the percentage of your gross monthly income that goes toward paying your monthly debts. It helps lenders determine whether you can afford to take on more debt.

Learn more about calculating your DTI, and how it factors into your ability to qualify for a mortgage.

How debt to income ratio is calculated

Debt-to-income ratio is calculated by dividing your monthly debts, including a new mortgage payment, by your monthly gross income (before taxes).

Recommended DTI ratio

Generally speaking, most mortgage programs will require:

  • A DTI ratio of 43% or less. This means a maximum of 43% of your gross monthly income should be going toward your overall monthly debts, including the new mortgage payment.
  • Of that 43%, 28% or less should be dedicated to your new mortgage payment
How to lower your DTI ratio

If you find your DTI ratio is on the high side, you may want to work on decreasing it long before applying for a mortgage. There are three ways to lower your debt-to-income ratio. You can increase your income, pay down your debt, or consider purchasing a less expensive home.

Ways to increase your income:

  • If available, request overtime hours at work
  • If appropriate, ask for a salary increase
  • Look for a side hustle
  • Consider getting a part-time job

Ways to pay down your debt:

Paying down any debt and/or increasing your income aren’t immediate fixes for qualifying for a mortgage. Lenders will want to see consistency in income for at least two years. It’s important to take your time, and monitor your credit utilization closely before applying for a mortgage.

DTI ratio isn’t the only factor

DTI ratio may help the lender determine whether you can afford to take on more debt, but the more important question is, once you have a mortgage payment, will you have enough money to comfortably afford all of your expenses?

When qualifying you for a specific loan amount, lenders don’t take into account other monthly expenses like food, health insurance, taxes, utilities, and entertainment. You’ll need to budget beyond what your lender labels as “affordable” for you.

What to remember

Your debt-to-income ratio is mainly about affordability. So it’s important to consider your finances as well as short- and long-term goals and keep them in mind throughout the mortgage process. Mortgage programs have different qualifying guidelines, and some lenders may offer programs with higher DTI ratios. Every borrower’s situation is different and your ability to qualify for a mortgage will be based on your overall financial picture. It can be a lot to wrap your head around, so consider speaking with a financial advisor that can help you understand your unique situation.

Ready for the next step?

If you have questions about home affordability or mortgage qualification, learn how a Citizens Bank Loan Officer can help you with your homebuying experience.

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