Your debt to income ratio, or “DTI”, is an important part of the mortgage qualification process. This ratio measures your monthly obligations compared to your monthly income. This ultimately determines how much of a mortgage payment you can comfortably afford.
Each loan program has unique qualifiers that determine what the maximum DTI can be. As a general rule, you want to make sure that your overall obligations, including the new mortgage payment, does not exceed 45% of your income. Some loan programs allow you to go as high as 57% debt to income ratio, as long as you have a good credit score or other compensating factors.
Lenders will look at both your “front-end ratio” and “back-end ratio” when qualifying you for a home loan. The front end ratio compares the mortgage payment only to your income, while the back end ratio compares total obligations to your income.
