To monitor your financial situation, you need to understand your debt- to income ratio (DTI). In order to calculate your debt to income ratio, you need to consider your monthly payments which have to be divided with the monthly gross income. If there is any debt which you might have planned to clear off in 6 months period with a normal payment then you might not need to consider it while calculating the DTI ratio. Your monthly food expenses, entertainment bills or even the utility bills shouldn’t be included as well while calculating the ratio.
Debit to income ratio:
- If you earn $ 4000 per month before you exclude taxes, it is your monthly income. If you got to pay an amount of $1200 per month as house rent and $ 400 per month for your car loan, $ 250 per month for your credit card then the total expenses would come around $ 1850.
- In order to get your debt to income ratio, you need to divide your monthly debt payment with your monthly income.
Meaning of DTI:
- Once you have calculated the DTI, you should understand what it says to you. The ratio should be around 30% or less which means that your income is more than what you owe.
- If the debt to income ratio is 44% or greater, it means that you are taking too much debt in relation to your income. If your DTI ratio is above 44% it would be very hard for you to get qualified for a mortgage.
Debt to income lenders:
- The lenders would calculate the mortgage value for which you would be eligible with the help of debt to income ratio.
- DTI ratio, loan to value and the credit score are very important for the lender to decide whether you are qualified for your loan or the mortgage amount.
- If you want to get the best rates from banks then you need to make sure that all your credit scores, DTI ratio, and the loan value have to be very strong.
- Your debt to income ratio would speak a lot about your financial health.
The best thing to do would be to keep your debts low and controlled. If you have taken too much debt then it might prevent you from getting qualified for a mortgage loan that you might need.