| Don't you just love all the terms, facts and figures you | | | | depends on the lender. Some lenders are willing to |
| have to deal with when refinancing a mortgage? It's | | | | accept more risk than others, although in today's |
| like having to learn a whole new language! And when | | | | climate the range is definitely tightening up. So ideally, |
| you're in the process of applying for any kind of | | | | the lower the better. |
| mortgage it doesn't take long to be asked about your | | | | It's a pretty safe bet you won't have any problems |
| debt-to-income ratio (DTI). | | | | getting financed if you're debt-to-income ratio is under |
| Your debt-to-income ratio (DTI) in plain English. | | | | 25% (including the proposed mortgage), and you have |
| I'll start with the bottom line - a definition: Your | | | | a good payment history. On the other side of the |
| debt-to-income ratio is what you get when you take | | | | scale, if your DTI gets over 50% you're going to have |
| the total amount of your monthly payments on debt, | | | | some real problems. |
| and then divide it by your total monthly take home pay. | | | | Under Barak Obamas Make Home Affordable (MHA) |
| The answer is your DTI. For example: If your monthly | | | | Loan Modification Program, a DTI of 55% or higher |
| take home pay is $2,400, and your paying $800 each | | | | requires an agreement from the borrower to undergo |
| month on debts, your debt-to-income ratio is 33%. | | | | counseling on how to use money - as a condition for |
| Because 800 divided by 2400 = .33, or, 33%. | | | | being approved for a loan modification. Their target |
| The purpose of the debt-to-income ratio is to compare | | | | goal for all borrowers on the program is 31%, and they |
| how much debt you have with how much money | | | | have incentives for lenders to do what it takes to |
| you're making. This is good information for you to | | | | modify a loan to bring the borrowers DTI to the 31% |
| know. It's helpful to have guidelines or standards you | | | | target.. |
| can go by to help you know how practical a purchase | | | | The Benefits of Keeping Track |
| you're considering is for your situation. Having | | | | The greatest benefit of keeping track of your |
| standards helps you make fewer financial mistakes. | | | | debt-to-income ratio is it enables you to take personal |
| It's also good for lenders, because it helps them to | | | | responsibility for your finances. The greater |
| evaluate risk Obviously they don't want to loan money | | | | awareness you have of how you're doing, the smarter |
| to anyone with a high debt-to-income ratio. Because | | | | decisions you'll make. The smarter decisions you make, |
| the higher the DTI, the harder it is to make payments. | | | | the more power you'll have over your money. The |
| What's a Good Percentage DTI to Shoot For? | | | | more power you have over your money, the more |
| That depends on how bad you want the loan, and | | | | freedom you'll have. And the more freedom you have, |
| how high of an interest rate you can live with. It also | | | | the happier you will be. |