DTI

While everyone is preoccupied with their credit score, many ignore their DTI. It could be argued that your DTI - and your ability to manage it - says a lot more about your financial security and how reliable you are to a lender than your credit score does.

What is DTI? Your DTI is your debt-to-income ratio. It is shown as a percentage, and lower is better. For example, if your DTI is 40%, that means you spend 4/10 of your monthly income on monthly debts. That includes mortgage/rent, car payment, student loans, credit card bills, etc. It doesn't include other bills that aren’t ‘debts’, like grocery bills or date night dinners.

How to determine your DTI? You simply add up those monthly debts and divide them by your pre-tax income, or your gross income. The answer is your DTI.

What is a good DTI? At Good Stewards, we recommend keeping your DTI at 35% or less. Can you ‘afford’ to spend most of your income every month? Sure, but that’s not smart. If it’s above 50%, you should consider making some major changes because we don’t think you have enough money left over for other things after your bills are paid.

Does DTI matter when buying a home? Generally speaking, lenders prefer a lower DTI. That’s because if any unforeseen emergency came up, people with a lower DTI would theoretically be in a better position to continue making their payments. With a higher DTI, you may find that your borrowing options are limited.

How do you improve your DTI? This is going to sound like your parents’ advice, but it really is this simple. Either make more, spend less, or both. One way to spend less would be to stop renting and let us help you buy a home.