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The Impact of Debt-to-Income Ratio (DTI) on Mortgage Applications


Apr 30, 2023



When applying for a mortgage, one of the most important factors that lenders consider is your debt-to-income ratio (DTI). DTI is a measure of your monthly debt payments relative to your gross monthly income. A high DTI can make it more difficult to qualify for a mortgage or to receive favorable terms. But with Hitch's home equity line of credit (HELOC), you can tap into your home's equity and improve your DTI.

What is a HELOC?

A HELOC is a type of revolving credit that allows you to borrow against the equity in your home. With a HELOC, you can draw on your credit line as needed, up to a certain limit. You only pay interest on the amount you borrow, and you can repay the balance at any time. A HELOC can be a flexible financing option for home improvements, debt consolidation, or other expenses.

How can a HELOC improve your DTI?

By using a HELOC to consolidate high-interest debt, you can lower your monthly payments and improve your DTI. For example, if you have multiple credit card balances with high interest rates, you can use your HELOC to pay off those balances and consolidate them into one monthly payment with a lower interest rate. This can help you reduce your monthly debt payments and improve your DTI, making it easier to qualify for a mortgage.

In addition, using a HELOC to make home improvements can increase your home's value, which can also improve your DTI. With a higher home value, your equity will increase, which can help lower your DTI ratio. Plus, home improvements can make your home more comfortable, functional, and attractive, making it a more desirable property for potential buyers.

Step-by-step instructions on how to calculate your debt-to-income ratio
  • Add up all your monthly debt payments. This includes payments for credit cards, car loans, student loans, personal loans, and any other debts you may have.

  • Determine your gross monthly income. This is your total income before taxes and other deductions. This may include your salary, bonuses, commissions, and any other regular sources of income.

  • Divide your total monthly debt payments by your gross monthly income.

  • Multiply the result by 100 to get your DTI percentage.

For example, let's say your total monthly debt payments are $1,200 and your gross monthly income is $4,000.

DTI = ($1,200 / $4,000) x 100

DTI = 0.3 x 100

DTI = 30%

In this example, your debt-to-income ratio would be 30%.

Lowering your debt-to-income ratio

Lowering your debt-to-income ratio (DTI) can help improve your financial health and make it easier to qualify for loans and credit. Here are some strategies you can use to lower your DTI:

  • Pay off debt: One of the most effective ways to lower your DTI is to pay off your debts. This can include making extra payments or consolidating your debts into a single, lower-interest loan.

  • Increase your income: If possible, consider finding ways to increase your income. This can include working overtime, taking on a part-time job, or finding freelance work.

  • Reduce your expenses: Another way to lower your DTI is to reduce your monthly expenses. This can include cutting back on non-essential spending, negotiating lower bills, or finding ways to save on housing, transportation, and other expenses.

  • Refinance loans: If you have high-interest loans, consider refinancing them into a lower-interest loan. This can help reduce your monthly payments and lower your overall debt load.

By using these strategies, you can lower your DTI and improve your financial health, making it easier to achieve your financial goals.

Why choose Hitch for your HELOC?

At Hitch, we offer competitive rates, flexible terms, and easy online applications for our HELOCs. With our HELOC, you can access up to 90% of your home's value, and you only pay interest on the amount you borrow. Plus, we offer a fast and simple application process, so you can get the financing you need quickly and easily.

In conclusion, your debt-to-income ratio (DTI) can have a significant impact on your mortgage application. By using a HELOC to consolidate debt, make home improvements, or for other expenses, you can improve your DTI and make it easier to qualify for a mortgage. With Hitch's HELOC, you can tap into your home's equity and get the financing you need to achieve your goals. Apply for a HELOC with Hitch today and take the first step towards a brighter financial future.

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Equal Housing Lender

Hitch, Inc. NMLS #2383367 #2383367

2158 NW Toussaint Drive. Bend, Oregon 97703

1. Qualified applicants may borrow up to 95% of their home’s value. This does not apply to investment properties.

2. HELOCs have a 10-year draw period. During the draw period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) the total of all accrued finance charges and other charges for the monthly billing cycle. During the draw period, the monthly minimum payments may not reduce the outstanding principal balance. During the repayment period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) 1/240th of the outstanding balance at the end of the draw period, plus all accrued finance charges and other fees, charges, and costs.The lender will calculate this amount by taking the outstanding Account Balance on the last day of the draw period and dividing it by 240 months and then adding any finance charge that accrues but remains unpaid during the monthly billing cycle plus any other fees, charges and costs to the fixed principal payment that is due. During the repayment period, the monthly minimum payments may not, to the extent permitted by law, fully repay the principal balance outstanding on the HELOC. At the end of the repayment period, the borrower must pay any remaining outstanding balance in one full payment.

3. The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Most borrowers get their cash on average in 21 days. The time period calculation to get cash is based on the first 4 months of 2024 loan funding's, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications. Closing costs can vary from 3.0 - 5.0%. An appraisal may be required to be completed on the property in some instances.

4. Not all borrowers will meet the requirements necessary to qualify. Rates and terms are subject to change based on market conditions and borrower eligibility. This offer is subject to verification of borrower qualifications, property evaluations, income verification and credit approval. This is not a commitment to lend.

5. The content provided is presented for information purposes only. This is not a commitment to lend or extend credit. Information and/or dates are subject to change without notice. All loans are subject to credit approval. Other restrictions may apply.