3 Steps to Improve Your Mortgage Rate (Step 2)
In order for a mortgage lender to determine how much you can afford to borrow, they will look at your debt-to-income ratio. This number is determined based upon your pre-tax income divided by the amount you use to pay off credit cards, student loans, auto loans etc. Keep in mind that your credit card payment is determined as the monthly minimum not the total balance.
A borrowers debt-to-income should be under 30% in order to assure favorable terms on a mortgage. If your DTI is too high, you should consider paying off some of your smaller loans or perhaps pay down your credit cards, focus on large items like airplane tickets and electronics instead of Halloween decorations or sexy costumes. Be sure not to close any of your credit cards because this will lower your credit score. Another way to improve your DTI you can have a spouse co-sign on your application. A co-signer will increase your total income thus improving your DTI.
