Actor JaChriz Siggers asked "What is a debt to income ratio?"
First, congrats are starting your home search! By asking that question, I know you have been talking with your lender and that is a fantastic first start!
A Debt to Income ratio or "DTI" is the percentage of a home buyer's monthly income that is used to pay debts (minimum payments). The DTI may also include principal, taxes, fees, and insurance premiums.
There are several "rules" regarding allowable DTI. The way it is used in lending is to calculate the amount of home a buyer has "room" for in the DTI in order to purchase a home. The general guideline for FHA is a 43% DTI. This means that if a buyer makes $5,000 per month, their maximum allowable DTI is $2,150. If a home buyer is using $1,000 to pay other debts, then they have $1,150 left to make a house payment. A lender can calculate exactly what they are "pre-approved" for based on that monthly figure.
There is a lot more that goes into the "DTI" and there are various exceptions, exemptions, and programs that change the 43% number and can be as high 55%. Much of that depends on the borrower, loan type, and other variables.
Thanks for the question JaChriz! Be sure to check him out on instagram!
See answers to this question and more on Episode 001 of The #REALQA Show