When it comes to qualifying for a loan to buy a Boston condo for sale or refinance your mortgage, there are plenty of numbers to consider, such as your credit score and the appraised home value. Perhaps one of the most important numbers is your debt-to-income (DTI) ratio, which compares the minimum payments on all debt you must make each month with your gross monthly income.
A simple DTI calculation is to divide your total monthly obligations by your total monthly income to generate a percentage, says Mayhew. For example, if your total monthly debts are $1,000 and your total monthly income is $4,000, your DTI would be 25%.
Your mortgage payments, including principal, interest, taxes and insurance, are contained in the DTI calculation, but auto insurance and life insurance payments, 401(k) contributions, income tax deductions and college or private school tuition payments are not.
While an ideal DTI would be 25% or less, the lower the DTI the better. Various loan programs have different DTI ratio requirements.
Applicants with a higher level of debt will usually need to reduce their debt and/or increase their income in order to buy Boston real estate for sale