Your debt-to-income (DTI) ratio is a key factor lender evaluate to determine your eligibility for mortgage approval. This ratio compares your total monthly debts to gross monthly income. Here’s what lenders look for and tips from ZAPA Mortgage to optimize your DTI.
What is Considered a Good DTI by Mortgage Lenders?
The majority of mortgage lenders prefer DTIs of 43% or less. This means keeping your total monthly debt payments under 43% of your total monthly pre-tax income. The lower your DTI, the better mortgage rates and terms you can qualify for.
How is DTI Calculated for a Mortgage Loan?
Front-end DTI specifically looks at housing costs like mortgage principal, interest, taxes and insurance divided by income. Back-end DTI also factors in other debts like credit cards, student loans, auto loans, etc.
5 Tips from ZAPA Mortgage to Improve Your Mortgage DTI
1. Pay down credit card balances to lower utilization. High revolving debt hurts back-end DTI.
2. Increase the down payment amount if possible. 20% down or more reduces monthly costs and front-end DTI.
3. Provide all documentation for residual income sources like bonuses, investments, etc. This can help balance your ratio.
4. Pay off installment loans to reduce total fixed monthly obligations.
5. Refinance existing debts at lower rates to shrink your monthly payments.
Taking proactive steps to optimize your debt-to-income ratio can help you qualify for better mortgage rates and terms. The experts at ZAPA Mortgage can advise how to improve your DTI before applying.
Understanding lender DTI guidelines and taking actions to lower your ratio sets you up for smooth sailing through mortgage approval. Contact ZAPA Mortgage today to evaluate your situation and home financing options. We are here to support you in qualifying.