How to Calculate Your Debt-To-Income Ratio
Let’s talk about debt-to-income (sometimes said Debt-to-Earnings) ratio, or DTI and how you can calculate it and see if you’re able to buy a house.Â
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Your Debt-To-Income ratio compares how much you owe each month to how much you earn. It is a percentage of your monthly income that goes to paying your monthly debt payments. It is used by mortgage lenders to determine your ability to manage monthly mortgage payments and existing debts. A low DTI ratio indicates a good balance between debt and income and indicates that you are a less risky borrower. Mortgage lenders want potential clients to be using roughly a third of their income to pay off debt. If you’re trying to qualify for a mortgage, it’s best to keep your debt-to-income ratio to 36% or lower. That way, you’ll improve your odds of getting a mortgage with better loan terms.
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How to calculate DTI:
DTI = (Monthly Debts/Monthly Gross Income) x 100
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Step 1: Add up your monthly bills which may include rent, student loans, car loans, and credit card payments. Basically anything you pay that will show up on your credit report.
Step 2: Divide the total by your gross monthly income. This is what you make every month before taxes.
Step 3: Multiply that answer by 100 to get your DTIÂ to result in the form of a percentage
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Now that you know how to calculate your DTI, let me know in the comments how you fare and make sure to like and share this post with someone who may be looking to buy a home.
