When you’re buying a home, one of the most important things to consider is how much of your debt-to-income ratio (DTI) should be allocated to your mortgage payment. Your DTI is the percentage of your monthly income that goes towards debt payments. Lenders typically want to see a DTI of no more than 36%, but some may be willing to approve loans with a higher DTI, depending on your credit score, down payment, and other factors.
I recommend that you keep your monthly mortgage payment below 28% of your gross monthly income. This will give you more financial breathing room and make it easier to afford other expenses, such as car payments, student loans, and credit card bills.
Here are some tips for keeping your DTI in check:
- Pay down debt. The more debt you have, the higher your DTI will be. Make a plan to pay down your debt as quickly as possible.
- Increase your income. If you can’t reduce your debt, you may need to increase your income. This could mean getting a part-time job, starting a side hustle, or asking for a raise at work.
- Consider a shorter-term mortgage. A shorter-term mortgage will have lower monthly payments than a longer-term mortgage. This can help you keep your DTI lower.
By following these tips, you can keep your DTI in check and make it easier to get approved for a mortgage and afford your monthly payments.
Here are some additional things to consider when calculating your debt-to-income ratio:
- Your other debts. Your mortgage payment is not the only debt that lenders will consider when calculating your DTI. They will also look at your car payments, student loans, credit card bills, and any other debts that you have.
- Your income. Your income is also important when calculating your DTI. Lenders will look at your gross income, which is your income before taxes, and your net income, which is your income after taxes.
- Your credit score. Your credit score is another factor that lenders will consider when calculating your DTI. A good credit score will help you get approved for a mortgage with a lower interest rate.
By understanding how debt-to-income ratio works, you can make informed decisions about your finances and improve your chances of getting approved for a mortgage.
According to Black Knight Home Price Index, here are the 10 most affordable and least affordable markets.
Most Affordable Markets
1. Cleveland, OH – DTI 21.7%
2. Pittsburgh, PA – DTI 23.1%
3. Hartford, CT – DTI 23.5%
4. St. Louis, MO – DTI 23.8%
5. Cincinnati, OH – DTI 23.9%
6. Oklahoma City, OK – DTI 24.1%
7. Detroit, MI – DTI 24.2%
8. Chicago, IL – DTI 24.8%
9. Kansas City, MO – DTI 25.2%
10. Minneapolis, MN – DTI 25.5%
Least Affordable Markets
1. Los Angeles, CA – DTI 65%
2. San Diego, CA – DTI 57.4%
3. San Jose, CA – DTI 55.2%
4. San Francisco, CA – DTI 53.9%
5. Miami, FL – DTI 46%
6. New York, NY – DTI 44.5%
7. Seattle, WA – DTI 42.1%
8. Riverside, CA – DTI 41.2%
9. Nashville, TN – DTI 38.8%
10. Sacramento, CA – DTI 38.4%
