For many millennials, the process of exploring the possibility of purchasing a home is the first time they encounter the term DTI, often as it is dashing their dreams. As more and more graduates emerge from college with larger and larger student loans, Debt To Income ratios can become a bigger stumbling block than down payments. But, this week, good news is coming to these beleaguered home seekers in the form of relaxed DTI ratios.
On Saturday, Fannie Mae will raise its DTI ceiling from the current 45 percent to 50 percent. While five percent may not seem like much, a new report by the Urban Institute estimates that 95,000 new home loans will result from the change.
To determine your Debt To Income ratio, simply add up all of your monthly debts and divide the number by your monthly income. If the result is below 50%, my may have a better chance at qualifying for a mortgage. Of course, lenders will also weigh credit history and credit score, as well as assets and the size of your down payment into their decision. Borrowers should also think about what kind of monthly payment fits in with personal budget priorities.