Posted on: 04th Nov, 2005 09:17 am
Is debt to income ratio important in mortgage and if yes how ?
Hi Janet,
Your debt to income ratio is an important indicator of your actual financial condition. To understand why, you need to be clear on how it is calculated.
The calculation is made by dividing your monthly minimum debt payments (excluding mortgage or rent) by your monthly gross income.
So, it may be seen that it gives a clear picture of your sincerity in repaying your debts ahead of purchasing something new. Also, it brings out your capability of repayment. So, lenders do pay importance to this ratio while agreeing for a mortgage deal.
Use the debt to income ratio calculator to work out your debt to income ratio.
Hope this will help you.
Regards,
Blue
Your debt to income ratio is an important indicator of your actual financial condition. To understand why, you need to be clear on how it is calculated.
The calculation is made by dividing your monthly minimum debt payments (excluding mortgage or rent) by your monthly gross income.
So, it may be seen that it gives a clear picture of your sincerity in repaying your debts ahead of purchasing something new. Also, it brings out your capability of repayment. So, lenders do pay importance to this ratio while agreeing for a mortgage deal.
Use the debt to income ratio calculator to work out your debt to income ratio.
Hope this will help you.
Regards,
Blue
Debt to income ratio shows what percentage of your income is available for a mortgage payment after all other payments are met. This is one among the various important tool which a lender considers before approving the home loan.
On most of the cases you will find conventional loan debts limits reffered to as the 28/36 qualifying ratio. These two numbers are used to examine the aspects of debt load.
The 28% indicates the maximum percentage of monthly gross income used for housing expenses. The amount include loan payment which is principal and interest, any private mortgage insurance, property taxes or any other dues.
The 36% indicates maximum percentage of monthly gross income addition to recurring debt, which include car loans, credit card payments, etc.
Niicss
On most of the cases you will find conventional loan debts limits reffered to as the 28/36 qualifying ratio. These two numbers are used to examine the aspects of debt load.
The 28% indicates the maximum percentage of monthly gross income used for housing expenses. The amount include loan payment which is principal and interest, any private mortgage insurance, property taxes or any other dues.
The 36% indicates maximum percentage of monthly gross income addition to recurring debt, which include car loans, credit card payments, etc.
Niicss
Hi Janet,
Welcome to MortgageFit Forums.
I think the points mentioned by Blue and Niicss, give a clear idea on the relationship. I would like to add some more information for your help.
Try to keep your debt to income ratio low. This will enable you to make major purchases on credit, when you require them.
If the ratio is high then it may make things difficult for you to get a credit in emergencies. On the other hand if you keep it low then you are more likely eligible to get the best mortgage terms with low interest rates.
This is because, lenders feel less risk in lending to a person with low debt to income ratio as it indicates the borrower's control over his expense and sincerity in making timely payments.
Hope I could clear things for you. For some more information refer here.
God bless you.
For MortgageFit,
Samantha
Welcome to MortgageFit Forums.
I think the points mentioned by Blue and Niicss, give a clear idea on the relationship. I would like to add some more information for your help.
Try to keep your debt to income ratio low. This will enable you to make major purchases on credit, when you require them.
If the ratio is high then it may make things difficult for you to get a credit in emergencies. On the other hand if you keep it low then you are more likely eligible to get the best mortgage terms with low interest rates.
This is because, lenders feel less risk in lending to a person with low debt to income ratio as it indicates the borrower's control over his expense and sincerity in making timely payments.
Hope I could clear things for you. For some more information refer here.
God bless you.
For MortgageFit,
Samantha
I would like to add some more information to it so that it can be more clear to janet.
This time with some example:
Say, Yearly Gross Income = $15,000 / Divided by 12 = $1,250 per month income
$1,250 Monthly Income x .28 = $350 for housing expense
$1,250 Monthly Income x .36 = $450 for housing expense plus recurring debt.
But not all loans follow this ratio, FHA loan ratio are most of the time as 29/41 allowing both housing expenses and recurring debt.
Thanks
Niicss
This time with some example:
Say, Yearly Gross Income = $15,000 / Divided by 12 = $1,250 per month income
$1,250 Monthly Income x .28 = $350 for housing expense
$1,250 Monthly Income x .36 = $450 for housing expense plus recurring debt.
But not all loans follow this ratio, FHA loan ratio are most of the time as 29/41 allowing both housing expenses and recurring debt.
Thanks
Niicss