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WHAT is DTI?
DTI stands for “debt-to-income” and it’s a ratio of your monthly payments divided by your total monthly income. It is one of several pieces of getting approved for a home loan.
What qualifies at debt?
Debt includes auto loans, personal loans, credit cards, financed items, etc. Debt does NOT include medical bills, utility bills, phone bills, insurance payments, or rent payments.
The NEED TO KNOW part:
This debt typically has a much shorter term, and therefore has a higher interest rate than a home loan. Given how rates spiked in 2022, that means monthly mortgage payments went up with them and disqualified a lot of prospective buyers.
So how can you use your understanding of DTI to combat rising interest rates?
The answer: by knowing how to lower your DTI at the closing table. Using seller concessions, saved cash, gifted cash, or equity in the home to pay off a high interest rate debt at closing, you eliminate one or more monthly payments. This means you free up income to make the mortgage payment and keep your DTI in the green. (Double-whammy bonus – your home loan has a lower interest rate.)
What does this mean for you?
It means that if you aren’t getting pre-approved for a home loan because your DTI is too high, you need to decrease your debt or increase your income. Decreasing your debt is obviously the most realistic option. (Fun fact: decreasing debt battles inflation.)
Let’s compare this to your current situation. You are living in a home that is too small, too big, or is owned by someone else. It’s either robbing you of your happiness, or you don’t even own it and therefore aren’t building your own wealth. Additionally, the payments you are making on your credit cards are keeping you from being able to take on a mortgage.
Assess your debt and where the highest interest rates are. Find out what the total payoffs would be in 90 days. If you’re a couple thousand dollars away, but only have enough for your down payment and closing costs, ask for the payoff amount (rounded to the nearest thousand) in seller concessions. If the seller agrees, they will cover the cost to pay that debt off at closing.
Using this trick of the trade is the difference between being stuck in a home you don’t want to be in or taking your next step at buildable wealth. It’s the difference between being forced to pay whatever your landlord decides to charge for rent this year and the stability of putting down roots and making your home your sanctuary.
Talk to your lender (or one of mine!) about how to eliminate debt at closing to help you get into the home you WANT to be in.
My preferred lenders are creative, attentive and efficient. If you’re looking to get pre-approved for your next home in the SWMO area, here is who you call:
Zack Denney with Community Mortgage Brokers
(417)224-8056
Online Application: https://signaturelending.my1003app.com/1394650/register
Kristy Roach with Arvest Bank
(417)413-8935
Online Application: https://www.arvesthomeloan.com/kroach1.html
