The Number That Actually Determines Whether You Qualify for a Mortgage

Most people assume that when a lender looks at their mortgage application the most important number is their salary. It is not. The number that carries the most weight in the qualification decision is your debt-to-income ratio and understanding how it works is essential before you apply.

What DTI Actually Is

Your debt-to-income ratio or DTI is the percentage of your gross monthly income that goes toward your total monthly debt payments including your future housing payment. It is a single number that tells an underwriter how much of your income is already spoken for each month before you have paid for groceries, utilities, or anything else.

The calculation is straightforward. Take your total monthly debt obligations including the projected new mortgage payment and divide that by your gross monthly income before taxes.

Here is what that looks like with real numbers. If you earn $6,000 per month before taxes and your total monthly debts including the new mortgage would be approximately $2,400 your DTI is 40 percent. Two thousand four hundred divided by six thousand equals forty percent.

What Lenders Are Looking For

Most conventional loan programs want to see a DTI at or below 43 to 45 percent and can sometimes go as high as 50 percent depending on the strength of the rest of the file. FHA loans can go a bit higher with compensating factors like strong reserves or significant equity. The specific thresholds vary by loan program and individual file strength but the principle is consistent across all of them. The lower your DTI the stronger your file looks to an underwriter.

A borrower with a high income but significant monthly debt obligations may qualify for less than a borrower with a more modest income and very little debt because the ratio is what matters rather than the gross income number in isolation.

What to Do If Your DTI Is Too High

As Judy Miller explains a DTI that is currently too high to qualify does not necessarily mean homeownership is out of reach. It often means that one or two strategic moves before applying could change the picture meaningfully.

Paying off a credit card eliminates that minimum monthly payment from the DTI calculation entirely. Paying off a personal loan does the same. Sometimes a single small move before applying makes the difference between a file that qualifies and one that does not. The key is knowing which obligations to address first and how much impact each one would have on the final ratio.

That is exactly the kind of conversation Judy Miller has with borrowers before they apply rather than after a file runs into problems in underwriting.

How to Find Out Where You Stand

Comment below or reach out to Judy Miller directly to find out whether your DTI is likely in the range to qualify. She can give you a useful answer without requiring a lot of personal information upfront and will help you identify whether you are ready to apply now or whether a small adjustment first would put you in a significantly stronger position.

Judy Miller is Branch Owner at Canopy Mortgage and would love to help you get into the best possible position before you apply for your mortgage loan.

Sources

ConsumerFinancialProtectionBureau.gov
FannieMae.com
MortgageNewsDaily.com
Investopedia.com
FHA.com