Talk to me about DTI

[starry1]

What exactly is the significance of DTI and when does it become important?  Does it influence your scores, or just financing on a major purchase, or maybe the ability to get a new cc?  

My DTI is considered excellent at 11% and I just want to know what it means for me.  Thanks.

[pakman92]

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@starry1 wrote:

What exactly is the significance of DTI and when does it become important?  Does it influence your scores, or just financing on a major purchase, or maybe the ability to get a new cc?  

My DTI is considered excellent at 11% and I just want to know what it means for me.  Thanks.

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The primary significance is when applying for a mortage.  Different kind of mortgages have different qualifying criteria, but most lenders for conventional mortgage use  28/36.  (Frontend/backend)

First number (front end) is for housing costs including mortgage payment, property tax, hazard insurance and mortgage insurance if needed.

Second number (back end) is first number + all monthly payment for other debts including auto loan, student loan, credit card payments, etc.

[guiness56]

Some auto lenders use it too.

[StartingOver10]

I agree with pakman92's post except for the ratios - the max backend I have seen is 49.99%.  Some lenders have a backend of 45%. It has been coming down in the past couple of years. The allowed front end ratio is higher than 28% too.

More importantly, find out what maximum you qualify for and then reduce the ratio to your comfort level. IME, a buyer's comfort level is much less than the maximum they can borrow (usually). If you are stretching yourself too thin, where your ratios are maxed out, then it might be better to wait until you are in a better financial position. After all, this is a long term commitment, not a 12 month lease. You will feel better if your payment is easy to make and not a hardship.

[starry1]

Thank you all.  I'm not looking to buy a house right now, I'm looking at maybe 2016 for that.  I have to wait at least until 2015 anyway because of my bk7.