Posted on: 06th Oct, 2005 11:24 am
What is the debt to income ration that a mortgage lender is looking for?
Hi Sandra,
Welcome to MortgageFit forum.
Debt to income ratio (DTI) gives a clear picture of your financial condition.
Your debt to income ratio is calculated by dividing monthly minimum debt payments (excluding utilities, food, entertainment) by monthly gross income.
For example, someone with a gross monthly income of $2,500 and making minimum payments of $500 on debt (loans and credit cards) has a debt to income ratio of 20 percent ($500 / $2500 = .20).
This formula varies slightly from lender to lender. Though variations may result in different percentage outcomes, but overall concept remains the same.
In general, a debt ratio (without utilities, etc.) of 10% or less is considered to be good. The situation is considered alarming if it becomes 20% as one emergency could topple the consumer big time. Although you may get mortgage with even higher percentage provided you may face some difficulty in obtaining it.
So, it is better to try so that your debt to income ratio never exceeds 36% because lenders prefer up to this ratio.
Hope this information will be helpful to you. Feel free to ask further questions.
Regards,
Caron
Welcome to MortgageFit forum.
Debt to income ratio (DTI) gives a clear picture of your financial condition.
Your debt to income ratio is calculated by dividing monthly minimum debt payments (excluding utilities, food, entertainment) by monthly gross income.
For example, someone with a gross monthly income of $2,500 and making minimum payments of $500 on debt (loans and credit cards) has a debt to income ratio of 20 percent ($500 / $2500 = .20).
This formula varies slightly from lender to lender. Though variations may result in different percentage outcomes, but overall concept remains the same.
In general, a debt ratio (without utilities, etc.) of 10% or less is considered to be good. The situation is considered alarming if it becomes 20% as one emergency could topple the consumer big time. Although you may get mortgage with even higher percentage provided you may face some difficulty in obtaining it.
So, it is better to try so that your debt to income ratio never exceeds 36% because lenders prefer up to this ratio.
Hope this information will be helpful to you. Feel free to ask further questions.
Regards,
Caron