Sure, it's math. But it can make or break your home loan application.

Home shoppers eager to qualify for a mortgage could get turned down because of a number they’ve never heard of: their debt-to-income ratio (DTI).

If you’re a bit hazy on DTI, you’re in good company. According to Fannie Mae’s Economic & Strategic Research (ESR) Group, more than half of consumers surveyed weren’t sure what it is either.

And, in this case, what they don’t know could hurt them — financially, that is.

High DTI (not credit scores or how much borrowers had in the bank) was the top reason to reject a loan applicant, according to a 2014 FICO study of credit-risk managers covered by The Washington Post.

Understanding DTI

Put simply, DTI is a calculation of your monthly debt payments divided by your gross monthly income.

Lenders calculate DTI in two ways, and both are important. First, they’ll add together all your expected housing expenses (your new mortgage, including taxes and insurance) and divide that by your gross (pre-tax) income. That’s called your front-end DTI.

Second, they do the same calculation but include all of your monthly expenses, like minimum payments on credit cards and auto loans. That’s called your back-end DTI.

For conventional mortgage loans (loans not insured by the government), mortgage lenders are generally looking for 28 percent or lower for the front-end DTI, and 36 percent or lower for the back-end.

“Some lenders may be a little stricter, and others less so,” says Cara Pierce, who’s worked as a housing financial specialist with Atlanta-based ClearPoint Credit Counseling Solutions for 19 years.

Why DTI matters

Your DTI ratio is important, Pierce says, because it’s what lenders use to determine how much money they will loan you.

If you’re already using 10 percent or more of your gross income to pay your monthly living expenses, such as car payments and credit card minimum payments, you’d have less than 26 percent for your other housing expenses to stay under 36-percent DTI on the back end.

A DTI higher than 36 percent doesn’t mean you won’t qualify. In fact, Fannie Mae purchases loans from lenders with back-end DTI ratios as high as 45 percent. But you may want to re-evaluate how much you want to spend on a home — or if it’s even the right time to buy.

Can I lower my DTI?

Lowering your DTI could help you get a lower interest rate “because less debt is generally viewed as a good thing,” notes Investopedia.

So if you still want that more expensive home, there are two ways to lower your DTI.

First, pay down debt. Even paying a little over the minimum payment each month on accounts will help. “If you have a $100 a month payment and can’t afford $200, just pay $125,” advises Pierce. “That will make it faster for you to pay off the debt.”

Alternatively, you could look for ways for you or your household to raise your income or consolidate your debt.

Either way, it’s important to know how lenders calculate DTI, and how a high DTI ratio could affect your chances of being approved for a loan. “People don’t understand DTI because it’s a math equation,” says Pierce, “but it’s a number that lenders will use to approve or deny loan applications.”

You can calculate your DTI manually or use an online calculator. Consumers can request a free copy of their credit report annually at or by calling 877-322-8228.


Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

About the author

Laura Haverty

Laura Haverty is an author of three non-fiction books and journalist who spent more than 25 years in the publishing industry. As Fannie Mae’s editor in chief, she covers housing industry news and trends. Follow Fannie Mae on TwitterFacebook, and LinkedIn.

These 5 common homeowner behaviors can make listing agents lose it.

The agent/seller relationship is like none other. No other professional spends the majority of their client time in the client’s actual home. We get very close to our sellers, not just physically but mentally and emotionally.

Because we see them in this somewhat vulnerable setting, and for an extended period, sometimes special bonds form. The line between the business and the personal sometimes blurs, and the seller feels comfortable enough to indulge in some behaviors that drive the agent crazy.

Here are five things sellers do that make agents go nuts — and diminish their chances for a successful sale at the best price and in the shortest amount of time.

Failing to keep the home clean

When your home is on the market, it needs to be ready for a showing on a moment’s notice. That means you need be “seller aware” 24/7.

If you’re serious about selling, keeping things tidy is par for the course. Make a plan to remove Fido’s saliva-stained tennis ball from the couch or Susie’s Barbie doll off the floor.

Before you list, move out the stuff you won’t need until you settle into your new home. Make a particular space in a closet or storage bin for the day-to-day stuff that could turn off potential buyers. Doing so will only ensure a positive experience for your prospective customer, the buyer.

Sticking around during an open house

There’s a reason real estate agents don’t want sellers hanging around when potential buyers arrive. While you may be perfectly friendly and agreeable, your presence can alienate your customers or make them feel uncomfortable without you even knowing it.

They want to dig their feet into their potential new home. That means they need to feel free to open closets, poke around in cabinets and make comments to their partners or kids.

Your presence prevents them from getting to know your home — and it can backfire. If you’re desperate to find out what’s going on at an open house or how buyers are responding, make a plan with your agent to show up anonymously during the open house.

Holding out for extra money at the last minute

A home sale negotiation can be a rocky road, even in healthy markets. If you sense the market is in your favor, you may second-guess the list price if you see activity quickly, particularly in the form of multiple offers.

It’s a great and powerful feeling. But imagine if, in an attempt to squeak out an additional $3,500 from a serious buyer, you pit them against a not-so-great buyer, and you lose both?

It happens, much to the dismay of the listing agents who advocate working with the best buyer and not necessarily the best “offer.”

In other words, you should always be thinking of the big picture — which isn’t always the same as the most significant offer.

Neglecting to clean up for the new buyer

Imagine you’re the buyer. Would you want to walk into your new home and find 12 cans of old paint in the garage? How about an old baby carriage in the attic?

Clean your home and deliver it in good condition to the new buyers. Not only will they appreciate the gesture, but they’re more likely to be on your side if you need them in the future for favors like forwarding mail or packages.

Insisting your home is unique

Your home is no doubt very special to you. You’ve built memories, tracked major life events and used it as more than just a place to lay your head at night. When it comes time to sell, it’s often hard to think of your home as a product on the open market.

Because of your emotional attachments to it, you may feel your place is unique, which you then equate to being more valuable.

If you find yourself resisting your agent’s pricing advice, take a step back and consider if you’re ready to sell. Resisting may be a sign you’re not yet willing to emotionally detach.

Keep in mind that an overpriced home, even in a strong market, will ultimately sell for less than a home priced well from the start.


Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

About the author

Brendon DeSimone

Brendon DeSimone is the author of Next Generation Real Estate: New Rules for Smarter Home Buying & Faster Selling. A 15-year veteran of the residential real estate industry and a nationally recognized real estate expert, Brendon has completed hundreds of transactions totaling more than $250M. His expert advice is often sought out by reporters and journalists in both local and national press. Brendon is a regularly featured guest on major television networks and programs including CNBC, FOX News, Bloomberg, Good Morning America, ABC’s 20/20 and HGTV. Brendon is the manager of the Bedford and Pound Ridge offices of Houlihan Lawrence, the leading real estate brokerage north of New York City.

You've just made a huge investment. Make sure you protect it.

By Shannon Ireland

Buying home insurance for the first time is overwhelming, especially if you’re trying to go it alone.

Before shopping for coverage, review these common insurance questions to make sure you’re armed with the knowledge to find the best policy for your needs.

Do I need a policy before buying a home?

Technically, no.

Most states require drivers to possess auto insurance before taking the car off the dealer’s lot. But home insurance is different. You can legally own a home sans insurance.

However, if you need a loan to buy your home, your lender will likely require you to purchase home insurance as a way to protect its investment.

What coverages are included?

Standard home insurance policies typically include coverage for the structure of your home, its contents, liability, other structures (such as a toolshed), and additional living expenses. Let’s break these down.

Structure: If your home is damaged or destroyed by a covered peril and needs to be repaired or rebuilt, your insurance can help pay for these expenses. Structure coverage is not the same as the amount you paid for your home. You need to set your structure coverage for the amount it would take to rebuild your home from the ground up.

Contents: This coverage can kick in if your belongings are damaged or destroyed. It’s typically set between 50 and 70 percent of your home’s structural coverage. If you have high-value items, such as an extensive jewelry collection or rare pieces of art, there will likely be a cap on the repair/replacement value (between $1,000 and $2,000). To get more coverage for high-value items, you can add a rider policy to your home insurance.

Liability: If someone is injured on your property, the liability portion of your insurance policy can help pay for medical, rehabilitation, and/or funeral expenses, as well as legal fees in the event that the injured party sues you. Liability is typically set at $100,000 worth of protection. However, it’s wise to set your coverage between $300,000 and $500,000 — especially if your home includes attractive nuisances, such as a pool or trampoline — as medical and legal costs can add up rapidly.

Other structures: If your home has a detached garage or shed that is damaged or destroyed by a covered peril, your insurance can help pay to repair or rebuild it.

Additional living expenses: In the event that your home is destroyed and needs to be rebuilt, this coverage can help pay for living expenses, such as hotel and food bills for the duration of time that you’re displaced. Check with your insurer to see if this protection only covers you and your family for a specified amount of time.

What are covered perils?

Standard home insurance policies can cover damage caused by fire, windstorms, hail, lightning, theft, vandalism, explosions, and riots. Typically, water damage, such as that from freezing and bursting pipes, is also covered.

However, damage resulting from floods or earthquakes is not covered. Those types of natural disasters require separate policies and should be purchased if you live in a high-risk area, such as near a body of water or in California, where floods and earthquakes, respectively, are common.

How do I know how much coverage I need?

Complete a home inventory. This is a complete list of everything you own and each item’s value. Home inventories should include photos or video of all your possessions and the amount you paid for them — if you have the receipts, that’s even better.

Make multiple copies of the list and keep it in various safe locations, such as a safety deposit box. Having this inventory will allow your insurance agent to accurately recommend the amount of coverage you need, and will help get the ball rolling quickly if you need to file a claim.

What determine how much I pay?

When determining how much your insurance policy will cost, providers take into account:

  • Your credit score.
  • Claims history, both your own and the claims history for the area in which you reside.
  • The location of your home.
  • The age of your home.
  • The costs associated with rebuilding your home.
  • Your proximity to a fire department and hydrant.
  • Whether you own pets or not. Owning a dog, especially certain breeds, means you’ll need more liability coverage.
  • The coverages you select.

How can I save money on insurance?

There are a few tricks to saving money on your monthly home insurance premiums, but not all are overnight fixes.

  • Discounts. Most insurance providers offer discounts for policyholders. Bundling multiple policies, such as home and auto, with the same provider is one of the simplest ways to save on multiple policies. Providers also usually offer discounts for safety features, such as security systems. Equipping your home with these additional features could help you keep more money in your wallet each month.
  • Raise your deductible. Raising your deductible (the amount you agree to pay toward a claim before insurance kicks in) will result in lower premiums. However, don’t set your deductible so high that it would cause you financial hardship if disaster strikes. For example, if you can’t afford to pay $1,000 out of pocket at any given time, set a lower deductible.
  • Improve your credit score. Most insurance providers use credit score as an indicator of how likely you are to file a claim. Studies have shown that those with low credit scores were more likely to file claims than those with high credit scores, who could afford to tackle some repairs or replacements on their own. Improving your credit score can ultimately decrease your premium payments, as you’ll become less of a risk to insure.

How do I choose a provider?

Shop around. All insurance carriers are different in terms of coverage and cost. The best way to find the right provider for you is to get quotes from several companies and compare them rather than making a rash decision.


Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

About the author is an online resource for homeowners and drivers across the country. Offering comparative automobile and home insurance quotes, consumers rely on for the most competitive rates from the top-rated insurance carriers in the country. The blog provides fresh tips and advice on a range of financial topics to help homeowners and home buyers make educated decisions about their insurance purchases. 

What you need to know about the process, from a veteran certified appraiser.

Getting your home appraised can often be a nerve-wracking experience. Your home and your handy work will be on display to be judged and valued so that you can move forward with selling your home.

But it doesn’t have to be a stressful experience. With the right tools, tricks and savvy, the appraisal process can not only go smoothly, it can also help you make a giant financial leap toward a future in a new home.

Do your homework

“Just like anything else — for example, if you’re going to select a doctor, dentist, or lawyer — you do your homework to find out the appraiser’s market knowledge of the area,” says Orange County (FL) Property Appraiser Rick Singh.

Ideally, your appraiser will be a local who knows the area well and who has been around long enough to see changes in the market. It’s also crucial to hire an appraiser who is state certified.

Check your maintenance

Whether it’s a loose shingle, chipped paint or dirty carpet, be sure to take care of it before the appraiser comes. Anything obvious that needs work could potentially eat away at your home’s value.

Also, keep a list of maintenance work that has been done on the home. Have a running list of what you have fixed and upgraded in your home as well as the amount of money you have spent.

Photo from Zillow listing.

Maximize curb appeal

When you’re getting your home appraised, remember that your house should look like the nicest one on the block.

“Landscaping plays so much into making a good first impression,” Singh says. “And remember that a first impression is a lasting impression. Make sure [your yard] is tidy and up-to-date. Trim or replace dead plants, and make sure it’s nice and green.”

Ensure appliances work

Do you have a dishwasher that only works when you give it a little kick, or a refrigerator that doesn’t keep your food as cool as it used to? These malfunctioning big-ticket items in a home could be a huge disadvantage to your home’s appraisal value.

Show pride in ownership

Although your home isn’t necessarily valued on the interior decor, it doesn’t hurt to show that it’s well cared for.

This doesn’t necessarily mean you have to trade in your T.J.Maxx finds for a pricey interior makeover, but make sure your home is neat, tidy, and exhibits that you generally have an interest in keeping your home looking its best.

Photo from Zillow listing.

Know your neighborhood

Before you get your home appraised, be sure you know what comparable nearby homes are going for, because that can be a huge predictor of your home’s value.

Also, inform your appraiser of any extraordinary circumstances, like if someone in your neighborhood had to sell their home quickly. Sellers may have to lower the price of their home to get out in a timely fashion in the event of death or job relocation in another state.

It’s extremely important that both you and your appraiser are knowledgeable about your neighborhood to get as accurate a value as possible.

Understand that cost does not equal value

When you make improvements to your home, you hope that everything you’re upgrading will increase your property value — but this isn’t always the case.

“Sellers may think, ‘I spent $60,000 on my home and $20,000 on the pool, so the home should be worth $80,000 more.’ However, the market may say it’s only worth $5,000 more. Find out what the economic investment is, because the rate of return is so important,” Singh says.

If you’re not satisfied, reach out

If you’re dissatisfied with the appraisal value, Singh advises contacting the appraiser about your concerns. Make sure you have data to back up your claims when you call to voice your opinion.

“You can always get a second appraisal,” Singh notes. “If you really think something was done incorrectly, voice your concern to the appraisal board as a last resort. All appraisers are licensed, and they don’t want to jeopardize their license. However, I often recommend going back to the appraiser and showing [him or her] the facts.”

Top image from Zillow listing.


About the author

Jamie Birdwell-Branson

Jamie Birdwell-Branson is a freelance writer based in the Midwest. Her work has appeared on Elle Decor,, InStyle and The Billfold, among others. She lives in a 1940s Colonial-style home with her spouse and her dog named Pizza. You can connect with Jamie on Twitter at @jbirdwell or her website.

Ready to knock down walls ASAP? You might want to hold off until you've settled in.

In today’s market, many buyers forego fixer-uppers for move-in ready homes. As a result, significant opportunities abound in prime locations as homes that need work linger on the market.

In competitive markets, savvy consumers gravitate toward these homes that nobody else wants. Why? They can customize the home to their requirements, and build some equity along the way.

That said, I often recommend that buyers live in a new home for a while before undertaking any major remodeling or pricey home improvements. I’m not talking about lighting or plumbing repairs necessary to make the house habitable. Rather, I’m referring to discretionary remodeling, expansions, and other improvement projects.

Here are three good reasons to at least consider holding off on the big home improvement projects until you’ve had some time to settle in.

1. Living in the home can change your mind

You may have grand visions for what you’d like to do to a home, based on its condition and your priorities at the time you buy it. But until you’re actually living there, it’s difficult to know exactly how you’ll use the house, what will work for you and what won’t.

Ultimately, it’s this day-to-day experience that will inform your home improvement decisions, instead of early notions of how you want your everyday experience to be.

2. After buying a home, you deserve a break

Buying a home is a massive project, an enormous change in your life, and a shock to the system — if not your finances. I’ve seen buyers jump through hoops, spending months on end looking for a home. In some situations, it becomes a part-time job.

A home renovation can be yet another big and stressful project, what with all the decisions to make and contractors with whom you’ll deal.

My recommendation: Take a break from the stress of buying your new home.

3. You need time to plan

Any renovation, no matter how small, should be designed with care. That means speaking to multiple architects, contractors or designers to get their take on your ideas and options — a time-consuming process.

An hour with a well-qualified contractor can uncover opportunities where you least expected them. For instance, even though it may be an added cost now, moving the laundry machines from the garage to the top floor during a larger renovation may save you time and money down the road.

Conversely, hiring architects and contractors while under the constraints of an escrow period is likely to cause problems for you later.

Some buyers want to get the renovation ball rolling as soon as possible because they feel like they can’t live in the home under construction, and they don’t want to pay rent and a mortgage at the same time. While this may make some sense economically up front, it can still cause costly problems later.

Often, buyers who said on day one that they don’t want a home that requires any work, end up buying a home that needs at least some. It’s the natural evolution of the buying process. Rarely does someone end up buying the home they started off thinking they wanted.

While you should be open to doing work on a home, don’t feel stressed about getting it all done at once. Live as-is for six months to a year. Take the home for a test drive and see how it runs. You may be surprised at how your perspective, and your priorities, change once you settle in.

Find out which home renovations DIYers most regretted tackling themselves.


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Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

About the author

Brendon DeSimone

Brendon DeSimone is the author of Next Generation Real Estate: New Rules for Smarter Home Buying & Faster Selling. A 15-year veteran of the residential real estate industry and a nationally recognized real estate expert, Brendon has completed hundreds of transactions totaling more than $250M. His expert advice is often sought out by reporters and journalists in both local and national press. Brendon is a regularly featured guest on major television networks and programs including CNBC, FOX News, Bloomberg, Good Morning America, ABC’s 20/20 and HGTV. Brendon is the manager of the Bedford and Pound Ridge offices of Houlihan Lawrence, the leading real estate brokerage north of New York City.