Debt to Income Ratio (DTI)
Sparkman Lending
Sparkman Lending
Published on January 20, 2022
Debt to Income Ratio (DTI)

Debt to Income Ratio (DTI)

What is the typical debt to income ratio?

Let’s talk about your debt-to-income ratio or DTI for short. If you have a really high debt to income ratio there’s no sense in applying for a loan quite yet. You don’t need the hard inquiries on your credit! It cost me $35 every time I pull a credit report and this is not a good thing all the way around so let’s talk through the debt to income ratio.

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Most mortgages, textbook answer, is about 45%. So, you don’t want your total debts to be more than 45% of your income. Lenders look at your gross income before taxes if you are a salaried employee. We take all your debts, credit report, plus the new house of course, and then we’re going to divide that by your income. That total doesn’t need to be much more than 45%. It can be a little different if you’re doing a government loan like an FHA loan or a VA loan. They will allow for a little bit higher debt to income ratio, but in this case, we are going to stick to the textbook answer. 

Have you got a bunch of student loans, car loans, credit cards all over the place? These are all factors that affect your debt-to-income ratio, so make sure you know your ratio before you start applying for loans. They say in today's market, this is one of the top reasons people don’t qualify for a mortgage! Just remember it only takes a few minutes and it is a super simple calculation that anybody can do at home with a pencil, paper, and calculator. If you’re really fancy you can pull out an Excel spreadsheet, and you can calculate your own debt to income ratio that way. Hopefully, this gave you some insight into what mortgage companies are expecting to see when it comes to debt to income ratio.

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