Let’s Get Those Vitals: A Financial Checkup - Quicken Loans Zing Blog
When it comes to getting a mortgage, many people think their credit score is the most important number associated with their name. While a person’s credit score is important, along with how much money they have saved, there’s another number that is just as important: debt-to-income (DTI) ratio.

A DTI ratio is one of the ways lenders measure your ability to make payments toward money you’ve borrowed. Your DTI ratio is expressed as a percentage and is comprised of your total minimum monthly debt divided by your gross monthly income. Your total minimum monthly debt is made up of your minimum monthly payments for car loans, student loans, credit card debt, home equity loans, mortgages, and any other recurring debt you might have.

When you’re in the market for a mortgage, it’s imperative that you know your DTI. To calculate it, you must take into account all of your monthly debt payments and divide the total by your gross monthly income (the amount of money you earn before taxes). For example, if you pay $1,500 a month for your mortgage, $100 a month for an auto loan and $400 a month for the rest of your debts, you pay a total of $2,000 per month toward debts. If your gross monthly income is $6,000, then your DTI ratio is 33%.

It’s important to remember that your minimum monthly debt is the minimum you are required to pay each month. For example, if you owe $3,000 on a high-interest credit card, and your minimum payment on that specific card is $150, only that $150 is going to figure into your DTI. Keep in mind, however, that paying only the minimum amount on your debts can make them grow larger.

A good rule of thumb is the lower your DTI, the better. A DTI less than 50% is generally considered workable in the mortgage industry. However, if your DTI is higher than 50%, you may have a difficult time qualifying for a mortgage. If your DTI is 20% or lower, you’ll be able to borrow more and have more options than someone with a higher DTI.

If your DTI isn’t to your liking, you’ve got two options, both of which are easier said than done. Your first option is to increase your income so you have more money to work with. Your second option is to reduce your debts to enable your existing income to go further. For the second option, focus on paying off your credit cards and other loans, and avoid taking on additional debts.

If you’re in the market for a new mortgage, don’t overlook your DTI. Many people assume that if they have a good credit score and good income, getting a mortgage will be no problem. The fact is that a good DTI also has a huge impact on getting you qualified for a mortgage.

We want to hear from you now! What questions do you have about DTI? Has a high DTI prevented you from qualifying for a mortgage? If so, how did you lower it? Let us know in the comments below!

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This Post Has 19 Comments

  1. When creditors check your DTI, do they calculate using all accounts on your credit report? Going by what I pay monthly my DTI is 25% but I’ve been told that my DTI is too high to even refinance my car.

    1. That’s correct. Creditors base your DTI on all the debts reporting on your credit report. If you have any old debts that are still reporting on your credit, that could be it. I would suggest checking out QLCredit to get a view of what’s on your credit report and going from there to come up with a plan of attack. Have a good day!

  2. […] We’ll also ask you for verbal estimates of your total income and any assets you want to use toward qualifying for the mortgage. This helps our Home Loan Experts calculate your savings for a down payment and reserves, as well as your debt-to-income (DTI) ratio. […]

  3. […] and any savings you might want to use to help you get your home. Based on this information, a debt-to-income (DTI) calculation is done to determine what you can […]

  4. My car loan is is mine and my husbands name but I pay the monthly note. Our mortgage is in my husbands name and in order to refinance, I provided statements showing the payments from my bank account. I had 2 months deferred and now Quicken is stating they have to have something stating ‘why’ they were deferred. I spoke with Nissan and they do not provide that since they do not ask why when you defer them. Now Quicken will not take the car loan off of my husbands DTI. Is this legal?

    1. Hi Jennifer:

      I’m sorry to hear you’re having this experience. I’m going to get this over to our Client Relations team to see what’s going on and make sure we get you a proper explanation to help you move forward.

      Kevin Graham

  5. I have an old CD now worth about $2600, and it has a rather unimpressive interest rate which yields about $5 in dividends every 3 months. Does it look better to mortgage lenders to cash this in to pay down some student loan debt (with an interest rate of 6.5) or to have on hand as savings?

    1. Hi ECZ:

      That’s a good question. In general, you want your debt-to-income (DTI) ratio to me as low as possible. On the other hand, you need a certain amount of available assets as reserves in order to close the loan. I’m going to recommend you get in touch with one of our Home Loan Experts by filling out this form or calling (888) 980-6716. They’ll be able to go deep on your situation and figure out the best move for you at this point. Hope this helps!

      Kevin Graham

  6. I only have $3000 saved. I have good 12 year employment history. My monthly income is $2800 before taxes. I have great credit scores. Paying $1360 monthly rent. My husband’s monthly income is $1960 but has only 10month employment history. Can we qualify for a mortgage loan?

      1. Hi Griselda:

        It’s really hard to give you approval advice on the blog because there’s just a lot that goes into it. That being said, you can check into your own options and get a preapproval online through Rocket Mortgage. If you’d like to go ahead and speak with one of our Home Loan Experts, you can do so by calling (888) 728-4702.

        Kevin Graham

  7. This was interesting and a great piece of info to me as I am in the market to buy my first home this coming year. I am gathering as much info as I can, learning as much as I can, as I am clueless about what it takes to buy a house. I sure wish it was as easy as renting is. :). Thanks.

    1. Hi Teresa:

      We’re glad you found this helpful. Renting certainly is easy, but the goal is to help you be informed so that we can take the hassle out of home buying. Since you’re looking to gather info to buy a home, I’m going to pass your information to one of our Home Loan Experts to answer any questions you might have. Have a great day! 🙂

      Kevin Graham

  8. We dont know if this is where to ask but we pay 600.00 a month in rent this is our fouth year.we have boiler heat to boot so we pay alot gs s bill. We pay all our bills every month. Owe no pmt for car. TOM has a paid car in credit. He had some medical problems knee. He on good ssd . I have garenteed monthly income. We like to see if we can finnally own our first home/trailer. Please see if theres help.

    1. Hi Cristen and Tom-

      We don’t finance trailers, but I’m going to pass your comment along to one of our Home Loan Experts to get more information from you and see if you might be able to qualify for home financing. They should reach out to you in the next day or so. Thanks!

      -Kevin Graham

  9. I owe around 30.000 .I own 4 acres of land. I own a mobile home.I have a rent building.I owe approximately $2000.00.I’m paying $$325.10 a month. OTHER BILLS ABOUT $800.00 a month.We make about $3.000.00a month.Now can you help me? If I have to I will put my property up until I could pay it all back.

    1. Hey, Donna. I’m going to need some more details. Are you looking to purchase a home? Or are you trying to refinance one of your other assets? Let me know, and I’ll point you in the right direction.

  10. The 2 things I have done in the past to lower my DTI are contesting my home values for tax purposes and shopping around for cheaper homeowners insurance. This has lowered my monthly mortgages thus lowering my DTI. As the real estate market recovers, the higher home values have increased my taxes, mortgages, and DTI. I still have one investment property to get refinanced, but may have a tough time doing so. I have never been late on a mortgage payment, have a high credit score, pay off my credit card balances monthly, and have no debt other than mortgages. DTI ratio is a frustrating obstacle to get around sometimes to say the least.

    1. It may be frustrating, but it certainly sounds like you have a good handle on things, Ken! Thanks for your comment.

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