A lender will consider your debt-to-income ratio – or DTI – to decide whether to approve your mortgage application and what interest rate to offer.
To calculate DTI, monthly debts are divided by gross income to get a percentage.
Most lenders want DTI at or below 36%.
If your DTI ratio is high, pay down debts before applying for a mortgage.
DTI is based on pre-tax income and doesn’t always consider all expenses.
That means a lender may approve you for a bigger mortgage than you can afford.
Add up all your monthly bills and compare them to your after-tax income to figure out how much house you can really afford.