To be successful, the process of purchasing a home needs a significant amount of time, planning, and financial preparedness. Here’s what you need to know about the debt-to-income ratio when buying a house in Oklahoma to guide you through the mortgage approval process:
What Is DTI ratio?
Simply put, DTI, or debt-to-income ratio is the percentage of your monthly income that you then pay out toward your existing debt.
As an example, if you make $2,000 every month and then pay out $1,200 to your existing debt, your DTI would be calculated at 60%. This 60% means that 60% of your monthly income goes strictly toward your overhead.
We’re talking about credit cards, auto payments, student loans, your current rent or mortgage, and even alimony and child support if you’re uncertain what counts as debt.
Anything that you are required to pay every single month will pile onto your DTI and increase that percentage.
How Is This Ratio Rated?
Now that we know what DTI actually is, what is considered a good DTI?
Most mortgage lenders prefer a DTI of 35 percent or less, which might be difficult for many people to achieve. Beyond that desirable range, 36 percent to 49 percent is deemed manageable, but not exceptional, and may limit your home-buying selections in Oklahoma.
Anything in the 50% or greater area is normally seen as the potential danger zone by mortgage lenders.
How Does This Impact Me?
It may seem like a complicated way of looking at the big picture of your finances, but your DTI tells a lender a lot about your financial health and spending.
A low DTI will appeal to lenders since it indicates that you can be trusted with a loan and that they will see a consistent return on their investment in you and the property. This self-assurance can lead to you being eligible for a larger loan amount and a smoother home-buying process in Oklahoma.
However, the major deal here is that you’re now eligible for a smaller loan with a cheaper interest rate. Interest payments will end up costing you a lot of money in the long run.
Although lowering your interest rate may not make a significant difference in your monthly payments, it will add up over time.
What Can I Do to Help Myself?
The very first step to improving your DTI is budgeting carefully and doing everything to stick to that budget.
The purpose of your budget is to reduce your costs so that you may use the extra money to pay down your debts. Paying off an existing debt can assist a lot, and any little bit that decreases your DTI will only benefit you in your quest for home finance.
The next step is to set a realistic timeframe for paying off your debts as quickly as possible while still saving for a down payment on a home.
Mortgage lenders want to see a buyer who is prepared to make a significant upfront investment in the home they are purchasing. Because you have a lower DTI, they can feel more comfortable giving you a larger loan at a cheaper interest rate because you are a less risky borrower.
Professional Guidance When Buying a House in Oklahoma
If you’re considering buying a house in Oklahoma and have concerns about your DTI, contact us today at (539) 664-8033!