What is the Debt-to-Income Ratio (DTI)

🏡 What Is the Debt-to-Income (DTI) Ratio & Why It Matters in Real Estate

If you’re thinking about buying a home in Lodi, Stockton, Galt, or anywhere in California’s Central Valley, there’s one important number you need to know about—your Debt-to-Income Ratio, or DTI. 🧮

It’s a key piece lenders use to determine how much house you can afford—and how likely you are to repay your mortgage. Let’s break it down!

💡 What Exactly Is DTI?

Your Debt-to-Income Ratio compares your monthly debt payments to your gross monthly income (that’s what you make before taxes).

Here’s the basic formula:

DTI = Total Monthly Debt ÷ Gross Monthly Income

So, if you make $6,000/month before taxes, and all your debts add up to $2,100/month, your DTI would be:

2,100 ÷ 6,000 = 35%

📋 What Counts as “Debt” in Your DTI?

Lenders look at recurring monthly debts like:

• Mortgage or rent payments

• Car loans 🚗

• Student loans 🎓

• Credit card minimum payments 💳

• Personal loans

• Alimony or child support (if applicable)

Things like groceries, utilities, or cell phone bills don’t count.

🏦 Why Lenders Care About Your DTI

When you apply for a mortgage, lenders want to be sure you’re not stretched too thin. A lower DTI tells them you have room in your budget to take on a home loan.

Most mortgage programs have DTI limits, like:

• Conventional loans: up to 43%

• FHA loans: sometimes allow up to 50%

• VA loans: flexible, but ideally below 41%

✅ Pro tip: A DTI under 36% is often considered strong.

🔍 What Happens If Your DTI Is Too High?

If your DTI is above the limit for a certain loan, you might:

• Qualify for a smaller loan amount

• Need a larger down payment

• Be asked to pay down debt before moving forward

But don’t worry—there are always options. Lenders (and great agents like me!) can help you explore what works best for your situation.

🔑 Quick Tips to Lower Your DTI

1. Pay down credit cards or smaller loans

2. Avoid taking on new debt before buying

3. Boost your income if possible (side hustle, raise, etc.)

4. Co-borrowers can sometimes help reduce your DTI

🎯 Final Thoughts

Understanding your DTI can make a big difference when you’re shopping for a home. It helps you get realistic about your budget, and it shows lenders you’re a strong, responsible buyer.

If you’re ready to start house-hunting in Lodi or the surrounding areas and want help reviewing your numbers, The Halstead Team is here to guide you every step of the way.

Let’s chat about your goals and get you on the path to homeownership!