Mortgage Calculator CA (California)
Overview of California Housing Market 2023
The California housing market is expected to cool in 2023, with home prices declining by 8.8% and sales volumes slowing by 7.2%. This is due to a number of factors, including rising interest rates, increasing inventory, and shifting buyer preferences. Buyers will have more choices and lower prices in 2023, but they will still need to be prepared to act quickly when they find a home they want. Investors are expected to continue to play a major role in the market, and buyers should be willing to compromise on their desired location and features.
At Brighton Bank, our commitment goes beyond just providing financial services. We believe in empowering our customers with the tools and resources they need to make informed decisions about their financial future. That's why we've put together this dedicated mortgage calculator landing page – to offer you a seamless, transparent, and personalized way to explore your home financing options.
What's on this page?
-Property Tax in California
-Closing Costs in California
-Housing Market in California
Mortgage Calculator CA (California)
How to Calculate a Mortgage Payment
M = P * [r(1+r)^n] / [(1+r)^n - 1]
The Variables are as follows:
M is the monthly mortgage payment.
P is the principal loan amount.
r is the monthly interest rate (annual rate divided by 12 and converted to a decimal).
n is the number of monthly payments (loan term in years multiplied by 12).
How a Mortgage Calculator can help you.
The Mortgage Calculator CA (California)) is a powerful tool designed to assist individuals in making well-informed decisions about their home financing options. This calculator provides a range of benefits:
Payment Estimation: Predict your monthly mortgage payments based on loan details, aiding budget planning.
Scenario Comparison: Testing different loan amounts, interest rates, and terms to understand their effects on payments.
Loan term: Choose 30 years for lower monthly payments but higher interest or 15 years for less interest with higher monthly payments.
Avoiding strain: Brighton Bank's calculator factors taxes, insurance, and mortgage costs for a clear monthly commitment view.
Down payment: Lower 3% down payments feasible, calculator assists in optimal initial investment.
Affordability Assessment: Determining how much house you can comfortably afford within your budget.
Interest Analysis: This shows the total interest paid over the loan's life, guiding decisions on loan terms and types.
Key Determinants of Your Mortgage Payment
At Brighton Bank, we understand that your mortgage payment is influenced by a range of factors. Here are the essential elements that contribute to shaping your mortgage payment:
Loan Amount and Interest Rate: The total amount you borrow and the interest rate applied directly impact your monthly payment. A higher loan amount or interest rate typically results in higher monthly payments, while a lower loan amount or interest rate leads to more manageable payments.
Loan Term and Type: The length of your loan term and whether it's a fixed-rate or adjustable-rate mortgage matters. Shorter terms often have higher monthly payments but lower overall interest costs. In contrast, longer terms may offer lower monthly payments but potentially higher interest expenses over time.
Property-Related Costs: Property taxes based on your home's value and location, along with homeowners insurance to safeguard your investment, are included in your monthly payment. We can help you estimate these costs accurately.
Down Payment and PMI: A larger down payment reduces your loan amount, potentially lowering your monthly payment. If your down payment is less than 20 percent, Private Mortgage Insurance (PMI) might apply, adding a cost to your payment until you gain sufficient equity.
Our team at Brighton Bank is committed to guiding you through these intricacies, ensuring you make informed decisions tailored to your financial aspirations. With our expertise, you can navigate these elements and secure a mortgage payment that suits your unique needs.
What you can do to lower your monthly payment
A mortgage constitutes a long-term financial arrangement aimed at funding a home purchase, necessitating both repayment of the principal amount and the regular settlement of interest to the lender. The monthly cost of a mortgage can vary significantly based on factors like property price, location, and the type of loan selected.
To assist you in curbing your monthly mortgage expenses and achieving savings, Brighton Bank offers insightful strategies:
Opt for a more budget-friendly home: Selecting a less expensive property translates to a reduced loan amount and subsequently lowers your monthly mortgage obligation.
Make a larger down payment: If you make a down payment of 20% or more, you won't have to pay private mortgage insurance (PMI). PMI is an extra insurance that lenders require if your down payment is less than 20%. It can add hundreds of dollars to your monthly mortgage payment.
Secure a lower interest rate: Engage in thorough research across different lenders to identify the most favorable interest rate, contributing to a decreased overall mortgage expense.
Adjust your loan term: Opting for a longer loan term results in more manageable monthly payments, though it leads to a higher cumulative interest payment over time.
How lenders decide how much you can afford to borrow
When considering your borrowing capacity, Brighton Bank takes into account several key factors to ensure a responsible and suitable lending decision. Here's how Brighton Bank determines your borrowing capacity:
Income Evaluation: Brighton Bank assesses your income stability and sources to gauge your ability to comfortably make repayments.
Debt-to-Income Ratio (DTI): The bank analyzes your existing debts in relation to your income to determine a borrowing amount that maintains a manageable debt load.
Credit History Check: Your credit score and history are reviewed to judge your creditworthiness and ensure that the borrowing terms align with your financial track record.
Down Payment & Affordability: Brighton Bank considers your down payment amount, overall property expenses, and the chosen loan type to ensure that the borrowing amount remains within your financial means.
Determining Your Affordable Home Budget in CA (California)
When determining your affordable home budget in California, you will need to consider your income, down payment, other debts, housing costs, and lifestyle costs. Your lender will typically approve you for a mortgage that is no more than 28% of your gross monthly income. The larger your down payment, the lower your monthly mortgage payment will be. Your monthly debt payments, including your car loan, student loan, and credit card payments, should not exceed 36% of your gross monthly income.
Let's say you have a gross monthly income of $5,000, a down payment of $20,000, and other monthly debts of $500. The average home price in the area you want to live in is $750,000. In this example, you can afford to buy a home in the area you want to live in. However, you may need to increase your down payment to $30,000 in order to get a lower monthly mortgage payment. This will give you more wiggle room in your budget and make it easier to afford other monthly expenses.
In addition to your mortgage payment, you will also need to factor in the cost of property taxes, homeowners insurance, and homeowners association fees (if applicable). You will also need to consider your other monthly expenses, such as food, transportation, and entertainment. Once you have considered all of these factors, you can use a mortgage calculator to determine your affordable home budget. It's important to note that the amount you can afford to spend on a home will also depend on the specific location you are looking in. Home prices vary widely across California, so it's important to do your research and find a location that fits your budget.
If you are thinking about buying a home in California, it is important to get pre-approved for a mortgage before you start looking at homes. This will help you stay on budget and make the home buying process go more smoothly. The pre-approval letter is not a guarantee that you will be approved for a mortgage, but it does give you a good idea of how much you can afford to spend. It can also help you negotiate a better price on a home.
Next Steps: What to Do After You Have Estimated Your Mortgage Payments
Following your estimation of mortgage payments, the journey towards homeownership unfolds with essential next steps guided by Brighton Bank.
Whether you're embarking on this path for the first time, considering refinancing, or managing credit challenges, Brighton Bank is here to offer invaluable support at every phase.
Compare Our Rates: Before making a commitment, it's crucial to explore and assess offers from various mortgage providers. Brighton Bank encourages you to compare our rates with others, ensuring you make an informed decision. For more details, you can also access information about mortgage rates tailored to your location.
Undecided? Rent or Buy: If you're still weighing the options between renting and buying a home, Brighton Bank provides the guidance you need to evaluate which choice best suits your unique circumstances and financial goals.
Expand Your Knowledge: Brighton Bank provides a comprehensive resource to help you expand your understanding of diverse mortgage options. Whether you're interested in reverse mortgages, VA home loans, or FHA home loans, Brighton Bank equips you with insights to select the mortgage type that aligns with your preferences and requirements.
The California housing market continues to face challenges amid the backdrop of elevated interest rates. Despite facing elevated interest rates and limited new listings, the market continues to demonstrate resilience, though certain areas are affected more than others. Consumer sentiment remains relatively optimistic, and businesses are also showing signs of improved confidence.
The California housing market showcases regional variations, with different areas experiencing diverse median sold prices and sales figures. While some regions demonstrate stability and growth, others face challenges with declining prices and sales. Economic conditions, housing supply, and interest rates continue to impact the market's performance.
In June 2023, California experienced a 1.4% decrease in home prices compared to the previous year, with homes selling at a median price of $796,100. The average number of homes sold decreased by 20.0% year-over-year, totaling 26,361 homes sold in June of this year, a significant decline from the 32,961 homes sold in June of the previous year. The median duration homes spent on the market was 24 days, marking a 2-day increase compared to the previous year
What is the housing market like right now?
What does this mean?
The trend and speed at which home prices are shifting serve as markers for the housing market's robustness and whether homes are becoming more or less within reach. Presently, the median home price in the United States stands at $796,100.
Average Closing Cost in CA (California) Counties
Average closing costs in California counties can vary widely based on factors such as property value, location, and local real estate practices. On average, California homebuyers can expect to pay around 2% to 5% of the home's purchase price in closing costs. These costs typically include fees for services like appraisal, title insurance, lender charges, escrow services, and various taxes
Average closing costs are the fees and expenses that homebuyers and sellers typically incur during the process of closing a real estate transaction. These costs can vary widely depending on factors like location, property value, and the specific terms of the deal. On average, closing costs typically range from 2% to 5% of the home's purchase price. For a homebuyer, these costs can include expenses such as loan origination fees, appraisal fees, title insurance, property taxes, and attorney fees. Sellers, on the other hand, may be responsible for costs like real estate agent commissions, transfer taxes, and any outstanding liens or repairs required to close the sale.
The exact breakdown of closing costs can differ from one transaction to another, but certain fees are fairly standard across most real estate transactions. These can include lender fees, title insurance, and escrow fees. It's essential for both buyers and sellers to carefully review the estimated closing costs provided by their real estate professionals and lenders to have a clear understanding of the financial implications of the transaction. Homebuyers may also have the opportunity to negotiate some of these costs with the seller or lender, potentially reducing their financial burden during the closing process.
The average closing costs encompass a range of fees and expenses incurred when buying or selling a property, and they typically amount to a percentage of the home's purchase price. The specific costs can vary widely depending on various factors, and it's crucial for individuals involved in a real estate transaction to be aware of these costs and to review and negotiate them whenever possible. Understanding closing costs is a fundamental aspect of the homebuying or selling process and helps individuals budget effectively for the overall cost of their real estate transactions.
Average Property Tax in CA (California) Counties
Comprehending the average property tax rates across various counties in California holds significant importance for both homeowners and investors. This understanding plays a pivotal role in evaluating affordability, conducting county-to-county comparisons, devising financial strategies, and aiding in making prudent choices for real estate investments.
This dataset offers valuable insights into the real estate landscape across California's diverse counties, shedding light on both property values and property tax obligations. Marin County's exceptionally high median home value of $1,053,600 signifies a thriving and affluent housing market, but this is balanced by a comparatively steep average effective property tax rate of 0.95%. This pattern is common in areas with strong real estate markets, where homeowners invest in more expensive properties but also shoulder higher property tax burdens.
Conversely, counties like Trinity, with a median home value of $285,700, present more affordable housing options, coupled with a lower average effective property tax rate of 0.58%. This data underscores a critical factor in the homeownership decision-making process: it's not merely about the purchase price of the home, but also the ongoing financial commitment represented by property taxes.
High property values can suggest robust investment potential but may come with elevated property tax payments, whereas lower property values might offer affordability but should be weighed alongside property tax rates to make informed homeownership decisions. Ultimately, this dataset equips individuals and families in California with essential information to assess the financial implications of their housing choices within the context of varying property values and tax rates.
Integrating California county property tax data into mortgage calculations stands as a crucial step in ensuring precise affordability evaluations and effective financial planning. This practice guarantees that payment estimations remain grounded in reality, factors in escrow requirements, and anticipates potential fluctuations in tax rates. By adopting this approach, individuals are better equipped to make well-informed decisions, whether they are prospective homeowners or investors looking to maximize returns on their real estate ventures.
What Property Tax Exemptions Are Available in California?
Let's delve into four common property tax exemptions applicable in California:
Homeowners' Exemption: This exemption applies to owner-occupied properties and provides a reduction in the assessed value of the property, thereby reducing the property taxes. The exact amount of the exemption can vary and is subtracted from the assessed value of the property before property taxes are calculated.
Disabled Veterans' Exemption: This exemption is available to eligible disabled veterans and their unmarried surviving spouses. It provides a property tax exemption based on a percentage of the assessed value of the property.
Widows, Widowers, and Disabled Persons Exemption: This exemption is available to qualifying homeowners who are widows, widowers, or disabled persons. It provides a reduction in property taxes based on specific criteria.
Senior Exemption: In California, some counties may offer a specific exemption or reduction in property taxes for senior citizens. These property tax relief programs are part of the efforts to provide support and assistance to elderly homeowners in the state. Eligibility criteria and the amount of the exemption can vary by county.
Property Tax Landscape in California and Beyond
California's property tax structure is shaped by Proposition 13, a voter-approved initiative from 1978. This regulation restricts property tax increases to 1% of the assessed value, augmented by locally approved taxes and assessments. The assessed value is established during property ownership changes or significant enhancements. Subsequent annual increases are capped at 2% or the inflation rate, whichever is lower. Proposition 13 also mandates a two-thirds majority vote for new local taxes, prompting local governments to seek alternative revenue sources for funding essential services.
The property tax landscapes outside California encompass a wide spectrum of systems. Some states share similarities with California's limitations on tax escalation, while others diverge significantly. Texas, for instance, which lacks state income tax, heavily relies on property taxes as a primary revenue stream. Conversely, some states balance property taxes with higher income or sales taxes to fund public services.
In some regions, property taxes are based on the property's market value, which can lead to higher fluctuations in tax payments. Property tax computation methods also vary, occasionally relying on market values, resulting in more pronounced tax fluctuations. In specific areas, exemptions are granted to specific groups, such as senior citizens or veterans, further illustrating the diversity of property tax approaches.
Home insurance, also known as homeowners insurance or property insurance, is a type of insurance policy that provides financial protection to homeowners against various risks and perils that could damage or destroy their property. This insurance coverage helps homeowners recover financially in case of unexpected events that result in damage to their homes, or belongings, or liability for injuries or damages to others that occur on their property.
Coverage Types and Options
When it comes to protecting your most valuable asset, understanding your options is essential. Home insurance offers various types of coverage to ensure you're safeguarded against unexpected events. Here are some key coverage types:
Dwelling Coverage: This protects the structure of your home itself, including its foundation, walls, roof, and more.
Personal Property Coverage: Covers your belongings, such as furniture, electronics, and clothing, in case of damage or theft.
Liability Coverage: Offers financial coverage in the event someone gets hurt on your premises and you are deemed liable.
Additional Living Expenses: Helps with temporary housing and living expenses if your home becomes uninhabitable due to covered events.
Factors That Determine Coverage Needs for CA (California)
When considering homeowners insurance in California, there are several factors that will determine the coverage you need. These factors can vary from person to person, but it's important to understand them in order to make an informed decision about your policy. Here are some key factors to consider:
Location - The location of your home plays a significant role in determining your coverage needs. California's diverse landscape presents varying risks across different areas, including coastal vulnerabilities in cities like San Francisco and Los Angeles, which face earthquakes, tsunamis, and sea-level rise. Flood-prone regions, such as Sacramento and parts of the Central Valley, necessitate flood insurance and preparedness due to their susceptibility to flooding during heavy rains and snowmelt. High-crime neighborhoods exist in cities like Oakland and Stockton, where areas like East Oakland and South Stockton have historically reported higher crime rates. Prospective residents should meticulously research local crime statistics, assess insurance needs, including earthquake and flood coverage, and consider factors like property values, emergency readiness, and access to essential services to make informed decisions tailored to their risk tolerance and lifestyle preferences when choosing a place to live in California.
Coastal Proximity - For homes located near the coast, there may be increased risks associated with hurricanes, storm surges, and coastal erosion. It's important to have coverage that protects your property from these potential threats.
Flood Zones - If your home is located within a flood zone, it's crucial to have flood insurance coverage, as standard homeowners insurance policies typically do not cover flood-related damages.
High-Crime Neighborhoods - Homes situated in areas with higher crime rates may require additional coverage for theft and vandalism. This can help protect your property and belongings in case of unfortunate events.
Dwelling Features - The characteristics of your home also influence your coverage needs. Factors such as the age, size, construction materials, roof type, and overall condition of your dwelling can impact the cost of insurance and the level of coverage required.
Property Value - The value of your home determines the amount of coverage you need to adequately protect your investment. It's essential to insure your home for its replacement cost, ensuring that you would receive enough compensation to rebuild or repair any damages.
Personal Belongings - The value of your personal belongings inside your home is another crucial aspect to consider. Expensive items such as jewelry, artwork, or electronics may require additional coverage through personal property endorsements or scheduled personal property policies.
Tips for Lowering Your Homeowners Insurance Premiums for CA (California)
Homeowners in California are often looking for ways to save on their insurance premiums. Here are some helpful tips to lower your homeowner's insurance costs:
Explore Options: Don't just accept the initial quote you get. Make an effort to obtain and compare estimates from several insurance providers.
Increase Deductibles: Think about increasing your deductible if you can afford a larger upfront cost during a claim.
Combine Coverage: A lot of insurance firms provide discounts when you merge various policies, like home and car insurance. Inquire about the potential savings when obtaining quotes.
Improve Home Security: Installing smoke detectors, burglar alarms, deadbolt locks, and other security measures can reduce the risk of damage or theft, leading to lower premiums. Be sure to inform your insurer once you have implemented these security features.
Maintain Good Credit: In many states, including California, insurance companies can use your credit score to determine your premiums. Keeping a strong credit rating can assist in reducing your insurance premiums.
Stay Claims-Free: Building a claims-free history can often lead to discounts on your premiums. Avoid making smaller claims and save your insurance for significant losses.
By implementing these tips, homeowners in California can potentially enjoy significant savings on their homeowner's insurance premiums while maintaining adequate coverage.
Trends in Homeowners Insurance Rates for CA (California)
Homeowners insurance rates can fluctuate over time due to various factors. Staying informed about the trends in homeowners insurance rates helps homeowners in California make educated decisions regarding their policies. Here are some recent trends worth considering:
Increasing Material and Labor Costs: The cost of building materials and labor can impact homeowners insurance rates. In recent years, the rising prices of construction materials and the demand for skilled labor have contributed to an increase in insurance premiums.
Climate Change Impact: Climate change can result in an increase in severe weather events, including hurricanes, storms, and floods. These events can cause significant property damage and result in insurance companies adjusting their rates accordingly.
Technological Advances: Advancements in technology have led to improved methods of assessing risks and deciding insurance premiums. Insurance companies are increasingly leveraging data and analytics to determine rates, resulting in more accurate pricing based on individual risk profiles.
Market Competition: The competitive landscape among insurance companies in California can influence rates. When multiple insurers compete for customers, it can lead to more competitive pricing and potential savings for homeowners.
Legislative Changes: Changes in local or state laws can also impact homeowners insurance rates. It's important to stay informed about any regulatory changes that may affect your premiums.
Keeping an eye on these trends helps homeowners in California understand the factors driving insurance rates and make informed decisions when purchasing or renewing their policies.
Average Homeowners Insurance Costs for CA (California)
Understanding the average homeowners insurance costs in California provides homeowners with a benchmark for comparison. While individual premiums can vary based on numerous factors, here is an overview of the average costs in the state:
In August 2023, the average yearly cost of homeowners insurance in California is $1,383, amounting to $115 per month. This cost is notably 21% less than the national average expenditure of $1,754 per year.
- This average cost, however, can vary depending on the factors discussed previously, such as location, dwelling features, property value, and personal belongings.
Coastal properties or areas prone to flooding may experience higher premiums due to increased risks.
It's important to note that this average cost is for a standard homeowners insurance policy and does not include any additional coverages or endorsements.
Homeowners should request personalized quotes from insurance companies to obtain accurate estimates based on their specific circumstances.
By understanding the average homeowners insurance costs in California, homeowners can better budget for their insurance expenses and ensure they have appropriate coverage without overpaying.
California State Average Insurance Premiums by Dwelling Limit
The data provided demonstrate a key characteristic of California's property tax system—its progressive nature. This means that property taxes are directly tied to the assessed value of the property. As property values increase, so does the annual property tax obligation. For instance, a homeowner with a property valued at $250,000 pays approximately $1,195.68 in property taxes annually, while a homeowner with a $750,000 property pays around $3,247.64.
California's property tax system is primarily governed by Proposition 13, which was passed in 1978. This law limits property tax rates to 1% of the property's assessed value at the time of purchase. It also restricts annual increases in assessed values to a maximum of 2% per year, unless there is a change in ownership or new construction. This system has several implications. First, it provides homeowners with more predictable and stable property tax bills, which can be helpful for long-term financial planning. Second, it encourages homeowners to hold onto their properties for extended periods, as selling and buying a new property could trigger a reassessment of the current market value.
Property taxes in California are a significant source of revenue for local governments and school districts. The revenue generated is used to fund a wide range of essential public services, including K-12 education, public safety, road maintenance, and community programs. However, it's essential for homeowners and potential buyers to recognize that while Proposition 13 provides stability, it can also result in variations in property tax obligations for properties of similar values purchased at different times. Additionally, local governments may impose additional assessments and taxes for specific purposes, such as funding local schools or infrastructure improvements.
Understanding California's property tax system is crucial for homeowners and potential buyers. Property taxes are a vital component of the overall cost of homeownership in the state, and they can vary based on property values, local assessments, and other factors. Therefore, individuals should consider property taxes as a significant financial factor when evaluating the affordability of owning property in California.
Mortgage Resources in CA (California)
Mortgage resources refer to various tools, information, and support available to individuals seeking to obtain or manage a mortgage loan. Mortgage resources are valuable for both first-time homebuyers and existing homeowners looking to refinance or better understand their mortgage options.
Brighton Bank Mortgage Services
Are you looking for reliable mortgage services in California? Look no further than Brighton Bank! We are dedicated to helping you achieve your homeownership dreams with our range of mortgage solutions tailored to meet your unique needs. Whether you're a first-time homebuyer or a seasoned real estate investor, Brighton Bank is here to assist you every step of the way.
Why Choose Brighton Bank for Your Mortgage Needs?
1. Personalized Service: Our team of experienced mortgage experts will work closely with you to understand your financial goals and find the right mortgage product that fits your budget and lifestyle.
2. Competitive Rates: We offer competitive interest rates and loan terms to help you save money over the life of your loan. Our goal is to make homeownership affordable for you.
3. Simple Pre-Approval Process: Getting started on your homeownership journey is easy with Brighton Bank. You can kickstart the pre-approval process today with just a few simple steps.
Start Your Homebuying Journey with Brighton Bank
Ready to take the first step towards homeownership in California? Click the button below to begin the pre-approval process with Brighton Bank. Our team is excited to work with you and help you achieve your homeownership dreams!
Local Economic Factors in CA (California)
Beyond your mortgage payment, it's essential to consider the local economic factors that can impact your financial stability and property value in California:
Employment Opportunities: The availability of jobs and the health of local industries play a role in your financial security and ability to meet mortgage payments.
Market Trends: Real estate markets can experience fluctuations in prices. Our team can provide you with insights into current market trends to assist in your decision-making.
Infrastructure and Development: Development projects, transportation networks, and infrastructure improvements can affect the desirability and value of properties in certain areas.
Property Value Trends: Understanding how property values have changed over time can give you a sense of the potential appreciation of your investment.
Using a mortgage calculator is a simple and efficient way to estimate your monthly mortgage payment. By entering essential details like the loan amount, interest rate, and duration of the loan, you can swiftly determine your monthly payments. It's crucial to note:
Loan Amount (Principal): This is the total amount of money you're borrowing to purchase the property.
Interest Rate: This is the annual interest rate on the loan. Make sure to convert this to a decimal by dividing it by 100.
Loan Term: The loan term is the number of years you have to repay the loan. It's usually expressed in years. Typical loan terms are 15, 20, or 30 years. A longer-term typically results in lower monthly payments but more interest paid over time.
Down Payment: The down payment is the initial amount of money you contribute toward the purchase price of the home. It's usually a percentage of the home's price, and a larger down payment can result in lower monthly payments.
Amortization: Amortization is the process of gradually paying off your mortgage over time through regular monthly payments. Early on, a larger portion of your payment goes toward interest, while later in the loan term, a larger portion goes toward paying down the principal.
Closing Costs: These are the fees associated with finalizing the mortgage and completing the home purchase. They can include things like appraisal fees, attorney fees, title insurance, and more.
Housing Market: The housing market refers to the buying and selling of residential properties. It includes all the activities and transactions related to homes, apartments, and other types of housing.
Mortgage: A mortgage refers to a loan acquired to buy a home, where the property acts as security for the borrowed amount.
Private Mortgage Insurance (PMI): A type of insurance that is often required by lenders when a borrower puts down less than 20% of the home's purchase price as a down payment. It's commonly used to mitigate the increased risk associated with lower down payments.
Debt-to-Income Ratio: A financial metric used by lenders to assess a borrower's ability to manage their debt payments in relation to their income. The DTI ratio helps lenders evaluate the borrower's financial stability and the likelihood of repaying the loan.