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Mortgage and debt

On Behalf of | Oct 13, 2022 | Mortgage Debt

When trying to get approved for a mortgage in Michigan, the debt to income ratio is one of the most important measures you should consider. The DTI is a way for lenders to judge how well you can financially handle the mortgage.

Debt to income ratio

While lenders will look at your credit history and other factors, the debt to income ratio carries a large amount of weight in their decision. It is a simple measure of how much debt you already carry and whether you have the income to take on more debt. If the debt to income ratio is too high, then the lender is not likely to approve the mortgage. A high DTI can also lead the lender to increase the interest rate on the mortgage out of concern that you may not be able to pay it back. There are only two ways to improve the DTI: pay down existing debt or make more money.

Improving DTI

As a person makes payments on their existing loans, their DTI will get better as long as they are paying enough to make up for the interest on the loans. Paying more towards the loans will improve DTI faster. Moreover, mortgage debt itself will affect DTI once a mortgage is approved. That means carrying a mortgage can make it harder to get more loans in the future until at least some of the mortgage is paid off.

Mortgage lenders take the debt to income ratio seriously as a way to evaluate whether a borrower can handle taking on a mortgage and what the rate on that mortgage should be.