May 27, 2024


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Understanding Debt-to-Income Ratio: Its Impact on Mortgage Approval

4 min read

Investing in a residential property is among a person’s largest financial achievements. It usually requires a massive corpus that is met via a substantial down payment and a loan. Owing to the massive amount and an extended repayment tenure, a PNB home loan is approved after various factors are evaluated to judge financial history and borrowers’ repayment ability. Another vital factor considered while determining a person’s eligibility is the debt-to-income ratio and the PNB home loan interest rate.

Your income is steady, you pay your credit card bills and monthly EMIs on time, and your credit score is good. Despite this, you are denied a mortgage loan. Are you wondering what is holding you back? The answer could be your DTI ratio. Do not worry; the article explains the impact debt-to-income ratio can have on mortgage approval. So, let’s learn how your debt-to-income ratio affects mortgage approval!

Impact of Debt-to-Income Ratio on Mortgage Approval

The debt-to-income ratio affects your eligibility on your PNB home loan. Here is how it happens:-

Loan Sanctioning

The debt-to-income ratio significantly determines whether your home loan will be sanctioned. A low debt-to-income ratio depicts a low financial risk to a loan provider, boosting your loan approval chances. On the other hand, if your debt-to-income ratio is high and there is no option left for financing facilities, your loan approval chances will decline.

Loan Amount

If your loan provider sanctions your loan application, the PNB home loan amount comes. It directly affects your EMI amount. Hence, a low debt-to-income ratio is vital if you want to apply for a high loan amount. Let’s understand this using an example. Your debt-to-income ratio is 40%. You need 60% of your monthly income to fulfil your requirements and cover the EMI of the new loan. Hence, loan providers may hesitate to approve a loan with a high amount.

Interest Rate

A low debt-to-income ratio can fetch you a loan at a PNB home loan interest rate. Since you have enough income to cover your equated monthly instalments, the risk to loan providers is directly decreased. Hence, they are more comfortable approving your loan application at reasonable interest rates.

Ways to Lower Your Debt-to-Income Ratio

Your DTI ratio can make or break your opportunity to obtain a PNB home loan. To lower your DTI, you can reduce credit card expenses, restructure loans to decrease EMIs, avoid falling into credit card debt, etc. If your number is high, below are some ways to reduce your debt-to-income ratio:-

Repay Loans Before Schedule

Your DTI is high primarily because of your debts. You can eliminate your debts by repaying your existing loans before the schedule. If you find it challenging to repay all loans simultaneously, try repaying one or two to boost your debt-to-income ratio.

Earn Additional Income

Nowadays, there are many side hustles that you can do from the comfort of your home on weekends or by investing some additional hours during the week. A part-time job will increase your monthly income, which results in a low debt-to-income ratio. 

Make an Effort to Negotiate for a Higher Pay

In addition to reducing your debt, another way to lower your debt-to-income ratio is an increase in your monthly income. If you are about to get a hike in your salary within a few months, try to speak and negotiate with your employer and check if you get a hike in your salary instantly. Also, you can take additional responsibilities at your workplace to increase your income.

Transfer Current Loans to Other Lenders at Low Interest Rates

Another efficient way to decrease your debt-to-income ratio is to transfer your current loans to another loan provider with a low rate. Decreasing your PNB home loan interest rate can lower your monthly EMI, reducing your debt-to-income ratio.


Eligibility for a home loan is based on how disciplined you have managed your previous credit and your capability to repay a loan. The DTI metric measures your ability to pay off a loan or a new loan in the future. The metric shows the income percentage that is pledged to meet current debts. Hence, a DTI calculator is suggested to ensure that you are in a comfortable range before availing of a loan. The debt-to-income ratio is significant for loan sanctioning and deciding the amount and the PNB home loan interest rate. Thus, ensuring that your debt payments do not take up the maximum amount of your monthly income is advisable. Retaining a cushion will assist you in getting a PNB home loan of your preferred amount at a reasonable interest rate.

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