Calculating Debt to Income Ratio
Debt to income is how lenders determine how much you can afford. They are looking for you to have a debt-to-income of between 40% to 45% depending on the loan program you are doing.
You can figure out your debt-to-income quick and easy with a little simple math. Basically it is the ratio of how much you bring in to how much you have going towards debt a month. These could be, but not limited to:
- house payment (the one you are looking to buy)
- car payment
- student loans
- personal loans
- credit cards
- child support
- any other monthly debt payments you have
Lets do an example:
Lets say you make $4,000 a month (before taxes). We use that as your income. Then add up all your debt. If you pay $750 for your cars, $150 towards credit cards, and $100 to student loans you have debt of $1,000. A house payment of $1,000 would get your debt-to-income ratio of 50% (debt or $1,000 plus house payment of $1,000 divided by your $4,000 income).
Depending on the loan program that might be a little high. You have the option of paying off debt or getting a less expensive house payment (a cheaper house your put more money down to lower your payment).
Debt-to-income in one factor that goes into what home you qualify for. For all questions and for a pre-approval contact our preferred lending partner.