Your debt-to-income ratio, which is expressed as a percentage, reflects how much of your income is leveraged by debt. To put it simply, it reveals how much of your hard-earned money is being paid to creditors. Mortgage lenders use debt-to-income ratios when they are approving buyers for home loans. Ideally, you want a very low debt-to-income ratio, but a ratio of 28 to 30 percent is usually acceptable to lenders. The maximum debt-to-income ratio a lender may consider is 36 percent.
Calculate your debt load by adding up your monthly debt payments, including your car loan, student loan and mortgage payments. Include the monthly minimum payments on your credit card debt as well.
2
Determine your gross monthly income from your recent pay stubs (before taxes).
3
Divide your total debt load (from Step 1) by your monthly gross income (from Step 2).
4
Multiply the decimal (from Step 3) by 100 to determine your debt-to-income ratio as a percentage.
Tips & Warnings
You can lower your debt-to-income ratio by paying off your debt or by increasing your income.
If you are considering applying for a mortgage, you should know your debt-to-income ratio before applying. InCharge Debt Solutions explains that the...
In order to calculate a debt-to-income ratio, calculate monthly income, monthly expenses and divide the expenses by the income. Calculate a debt-to-income...
MIghtyDreamer
Aug 05, 2008
Ms. Budget :) thanks