Aaron Whybrow explains how banks calculate debt-to-income ratios to approve mortgages. Different lenders use different formulas, some stricter than others. If your DTI is too high, you can switch lenders, explain your rising income, or show investment property income to justify the loan.
Debt to income ratios, always a percentage, always a ratio. Hey, it's Aaron from diagnostics and finance. Banks love percentages. They do their interest rate, they do loan to value ratios. The other thing they do is a debt to income ratio. So it's how much income you have to how much debt you have. Some banks have restricted it and some banks still have it out there. There's numbers that are out there at the moment. We've got number six, we've got number seven, we've got number nine. So a lot of the banks use these different numbers and not to pick on anyone, but 6, 7 and 9 have a different calculator for each bank. So just to make it really funky for everyone is that they all calculate it differently. Now everyone's asking what does this mean for me? Debt to income ratio. If you are going to go over your debt to income ratio, you have to explain it to the bank and sometimes an explanation won't matter, they won't like the loan. So then you need to find the bank that may be at a 9 or a 7 depending on where you're at. If you do go over a debt to income ratio, you will probably be advised by a mortgage broker or a bank that you need to explain how you're going to repay the mortgage with the higher level of debt. So it could be that you, you're a young person in a good career prospects, income is increasing, it's an investment property, you're buying, you're paying principal and interest and a whole range of other hosts of conversations to have. But I just wanted to put out there, debt to income ratio is a funky term that we use in the mortgage industry and if it comes up for you, at least you've seen this little video and you'll be able to jump in either if you're blocked at the six people at the six, you can potentially look at the seven, you can look at the nine one. And whatever your personal circumstances are required to be able to achieve your financial goals, you'll be able to do it.
