Your debt-to-income (DTI) ratio is the percentage of your monthly income that goes toward debt payments: credit cards, student loans, auto loans, and anything else you owe money on. Since getting a home loan means taking on another large debt, it helps to have a low DTI ratio during your mortgage process so lenders know you have enough available income to cover their payments.
The lower your DTI ratio, the better chance you have of getting a loan with favorable terms. A DTI ratio of 35% or lower is considered good.
If your DTI ratio is too high, you can lower it by increasing your income or reducing your debts. If this is a good time for you to ask for a raise or pursue a promotion, give it a shot! Taking on a second job part-time is also an option for some.
Reducing debts, however, is generally more manageable than increasing income in a specific time frame. Consider refinancing your loans to lower the monthly payments, transferring credit card balances to a better card, and/or consolidating different debts into a single payment. A debt relief company may also be able to help you pay down some of your balances.
Talk to your loan officer about your DTI ratio and what you can do to maintain a healthy number. They’ll work with you to make sure you’re in the best position to get a favorable home loan.