Debt-to-Income Ratio: How It Impacts Your Mortgage Approval and How to Improve It

When you apply for a mortgage, one of the first things lenders look at is your debt-to-income (DTI) ratio. It’s a key factor that determines whether you qualify for a mortgage and how much you can borrow.

So, what exactly is your DTI ratio, and how can you improve it? Let’s break it down:

What is Debt-to-Income Ratio? Your DTI ratio is the percentage of your monthly income that goes toward paying debts. This includes things like car payments, credit cards, student loans, and any other regular monthly debt payments. The lower your DTI, the better your chances of getting approved for a mortgage.

How to Improve Your DTI Ratio

1.    Pay Down Debts: Start by tackling high-interest debts, like credit cards. Even small payments can improve your ratio over time.

2.    Avoid New Debts: Taking on new loans or credit cards can raise your DTI. Try to avoid any new financial obligations before applying for a mortgage.

3.    Increase Your Income: If possible, consider finding ways to increase your income, such as taking on extra work or a side hustle. A higher income can lower your DTI.

4.    Debt Consolidation: Consider consolidating high-interest debts into one loan with a lower interest rate. This can reduce your monthly payments and improve your DTI ratio.

Lenders typically prefer a DTI ratio below 43%, though some may be more flexible. Keeping your DTI low is crucial to improving your mortgage approval odds. Need help figuring out your DTI or how to improve it? Let’s chat!