Understanding Debt-to-Income Ratio for Co-ops in Brooklyn
Apr 18, 2023 brooklyn,Brooklyn Buyers,Brooklyn Buyers Agent,brooklyn real estate,Buying in Brooklyn,finances,financial planning
Before searching for “what Brooklyn neighborhood I should live in,” you may want to consider your debt-to-income ratio or DTI. Buying into a co-op can be great and challenging all at the same time. We did a little research ourselves, so you have an idea of what the debt-to-income ratio for co-ops in Brooklyn looks like.
How Debt-to-Income Ratio Is Calculated
First, let’s do a quick lesson on the debt-to-income ratio and its calculation. DTI is all your monthly debt payments divided by your gross monthly income. Lenders will use this number to measure your ability to manage the monthly payments to repay the money you plan to borrow. Co-op boards will use the number similarly to see if you can afford to buy the apartment, ergo, pay your monthly mortgage and maintenance fees.
If you want a simple way of calculating your DTI, Bankrate has a DTI calculator. All you have to do is insert your monthly income and monthly debt into the boxes.
Keep It Between 22 to 24 Percent
Experts say to keep your DTI between 22 and 24 percent. The actual percentage may vary due to the specific building requirements. Any DTI above 30% will limit your co-op buying options.
Co-op boards don’t tend to spell out their requirements. Debt-to-income ratio for Co-ops in Brooklyn, NYC, can be tough. They commonly look for 25 percent or under or, even worse, 20 percent. Other considerations are included when a co-op board reviews a potential resident, such as assets, liabilities, work history, and potential future income. But the debt-to-income is an important calculation, especially for first-time home buyers who don’t usually have liquid assets in the bank.
How Do You Lower Your DTI?
There are many ways to lower your DTI. One of the most efficient ways is to limit or lower your consumer debts like credit card debt, student loans, auto loans, mortgages, and payday loans. You don’t want to take out another loan or make a big purchase during the time when you plan on purchasing.
Consider your student loans. Even if you have been offered to stop payments temporarily, they need to be entered into any repayment plan to lower the monthly student debt requirements.
Also, consider an adjustable-rate mortgage if you are financing your co-op purchase. Shorter-term ARMs have the potential to lower your monthly costs. An alternative is taking out an interest-only mortgage which lowers monthly costs dramatically, but be aware some boards do not accept interest-only mortgages. Another option is a 40-year mortgage, which can lower your monthly payments.
Need help figuring out your DTI? We’ve got the answers you need. We’ve worked with buyers of all financial backgrounds, and many of whom were business owners which makes things even trickier. But if you get in touch, we can help you in your specific circumstance and get you a home you love!
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If you’re interested in learning more about the buying process, download our free Buying Into Brooklyn Ebook. We share a ton of valuable resources to demystify the buying process and help you become a Brooklyn home-owner.