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Your Debt-To-Income Ratio and How It Affects Your Mortgage When you’re delving into the market in the hopes of finding your dream home, it’s likely you’ll come across the term debt-to-income ratio. This may not seem important at first, but your DTI is the key to determining the amount of money you can put into your home and just how much you should spend on a monthly basis. If you’re curious about what this means for you, here’s how to calculate it and how it can impact your mortgage.

What’s Your DTI Ratio?

One of the best ways to determine whether or not a home is affordable for you is to first calculate your DTI ratio. To get this amount, add up all of your monthly payments including any credit card, loan and mortgage payments, and divide this amount by your gross monthly income. The amount you get is your DTI percentage and this will help to determine how much your monthly payment should be.

What Does Your DTI Mean?

Your DTI percentage helps to determine the amount of house you can afford on a monthly basis, and this is why it can be such a good way to help you find the right home. While a DTI of 25% or less is ideal, a DTI that rises above 43% may be hard to get financing for since there will be little room for error. When it comes to a higher debt load, approval may come down to what your credit history says about your financial health.

The Amount Of Home You Can Afford

It’s easy to be convinced that your dream home is for you, and worth the splurge, but investing in too much home on a consistent basis can lead to future financial difficulties. If you’re set on a home that has a high monthly payment, you may want to hold off until you’ve saved a larger down payment or revamp your budget so that you can make the investment work for you. It may also be worth continuing the housing search so that you have more flexibility to invest in education, travel or other things down the road.

Your DTI ratio may be unfamiliar now, but this can be a great save when it comes to determining how much home you can afford and what will stretch your limits. If you’re currently looking into your housing options and are curious about what’s available to you, contact your trusted mortgage professionals for more information.

Understanding Mortgage Amortizations and Why Longer Periods Can Cost More Buying a home is one of the largest investments you will make in your life, and that’s why so many people have longer mortgage amortization periods to pay down the principal. While it may seem appealing to have a longer amortization period, here’s why an extended loan term can end up costing you more and may be less financially beneficial when it comes right down to it.

About Mortgage Amortization

Generally speaking, a 25-year mortgage amortization period can be typical, but there are many loan periods that a homebuyer can choose for amortization. While a longer-loan period may seem enticing because it will mean a smaller monthly payment, a shorter amortization will enable you to own your investment sooner, which can be a great boon for many people. It’s worth being aware of what works best for you as this will depend on your financial situation.

Paying Off The Principal

For those who have a high monthly payment, a longer mortgage period can seem like a benefit. However, while this will lower your monthly payment, it also means that you will be paying less on the principal over time and this can cost you when it comes to interest. A shorter loan period, on the other hand, may force you to re-do your budget to make the monthly payment, but you’ll be paying more on the principal each month and less on interest over time. A 25-year term may sound good at first, but a shorter term may be more financially lucrative in the long run.

What Works Best For You?

It may seem like a shorter loan period is the right financial decision, but there are a lot of factors that go into determining what will work best for you. If your interest rate is low and you’re struggling to make your monthly payment as it is, a longer loan period may be for the best. However, if you have the money in the bank and you can still live your life while saving a little bit extra, a shorter loan period may be an option that saves money in the end.

On the surface, a longer loan period and a shorter monthly payment may seem optimal, but it’s important to weigh all of the variables before deciding on your mortgage amortization. If you’re currently getting prepared to invest in a home, you may want to contact one of our mortgage professionals for more information.

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