DTI ratio is a financial metric used by lenders to determine how much of a borrower’s income is being used to make payments on debts. It’s calculated by dividing the borrower’s total monthly debt payments (including the proposed mortgage payment) by their gross monthly income.
The 43% threshold is a commonly used benchmark for determining the maximum DTI ratio that a borrower should have in order to qualify for a mortgage loan. This is because a DTI ratio higher than 43% may indicate that the borrower is overextended financially and may have difficulty making their mortgage payments.
However, it’s worth noting that not all lenders have the same requirements, some lenders may have a more restrictive policy and will only approve borrowers with a DTI ratio of less than 43%. Additionally, other factors such as credit score, down payment, and reserves will also be taken into consideration when evaluating a mortgage application.
This is a supplementary post to: First-Time Homebuyer’s Guide to Mortgage Approval