Woohoo! You're approved — now you can let loose a bit! Not so fast...
Posted by Kelly
Thu 04 March 2021
So, you’ve done the hard yards — saved your down payment, endured the loan process (enjoyed the loan process if it’s with us), got a Purchase-Ready Approval, and locked your rate.
Surely now you can stop holding your breath and loosen the belt on the ol’ finances right? Maybe buy that new car? Apply for a new credit card? Not quite.
You see, that approval was based on a bunch of things like your credit score and importantly, your debt to income ratio (DTI).
Why your DTI matters.
So, your DTI tells us pretty quickly whether or not you’re going to be okay to comfortably pay off a home loan month in month out.
To figure it out, we take your monthly debt and divide it by your gross income. So let’s say your total payments per month are $1500, and your gross monthly income is $5000. We divide 1500 by 5000 to get 0.3 — so your DTI is 30%.
So will 30% DTI get you a home loan?
It depends on the lender — they differ on their DTI cut-offs but most lenders agree that your DTI should be 36% or under. That way, you have enough left over each month to make your home loan payment.
So can I get a new car or what?
Just cool your jets. While you’re looking pretty good for closing day, your financial profile still needs to go through underwriting, or as we call it ‘Review’ (sounds way less scary). That’s when our Reviewers will give your profile one last check before giving it the official thumbs up.
So imagine this: you’ve been ‘pre-approved’ based on your peachy 30% DTI, you’ve locked in a sweet rate and now you think “Gosh darn it I’m excited! I’ve been saving for this place for years, and now I’ve got the pre-approval, I should treat myself to a new car/credit card/petting zoo!”
You go out, you open a new credit card, get a loan for a new car or invest heavily in miniature horses. Suddenly that debt portion of your DTI is looking a lot less awesome.
In some cases, it could increase so much that your ‘pre-approval’ is affected.
So what should you do after you’re ‘pre-approved ’? Nothing.
Sit tight, work through those final steps to closing day. Heck, why not use the time to interview baristas in your new neighborhood — rule out the douchebags nice and early.
Whatever you do, just resist the urge to make any big financial moves — those ponies aren’t going anywhere.