Debt-to-income ratio, or DTI, is one of the most important factors in how your mortgage rate is determined. Knowing this going in is something that will give you a huge advantage in your search for the best rate and know when the best time to refinance comes along. Here’s how to calculate your Debt-to-Income Ratio and get a better rate.
Your DTI is essentially all of your monthly debt divided into all of your monthly income. Make sure that you know everything that you owe, though, including:
- Mortgage payment
- Car payment
- Credit card payment
- Student loans/personal loans
- Child support/alimony payments
- Other obligations and subscriptions
Don’t forget other debts that will come in the future as well, like tax debts and insurance, and small bills that come due. When you check out your credit cards, don’t use your full debt, just use the minimum payment.
So, total income per month divided by total debts per month equals your DTI.
Why is this important?
You obviously want your DTI as low as possible, because that is how you save money. The lower your DTI, the more money in your pocket every month. It also gives you some room to maneuver in case of emergencies and lets you breathe a little easier at night, knowing that you’re prepared for problems. Anyone who pays their own bills has woken up in the middle f the night worried about their bills, so keeping your DTI low is peace of mind. It’s also a great sign to lenders that you aren’t living beyond your means and can stretch a little to reach your dream home.
This makes it vitally important to make sure that you are getting the lowest rate on your mortgage, as that will change your DTI considerably. Refinancing to a lower interest rate or locking in a new home rate today when rates are low will help you reach that goal of low DTI and money in your pocket, and will help in the future for your financial health.
If you’re ready to buy a home or want to lower your rate, call us in St. Louis at (314) 781-9700, Chicago at (773) 770-4727, Indianapolis at (317) 550-1515 or Nashville at (615) 810-8555. You can always apply online at www.thehomeloanexpert.com, and we’re also open on Saturdays to better serve you. We work hard to make it easy on you. Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?