Your debt to income ratio tells lenders how much of your income goes to recurring debt. When applying for a mortgage, this number is a key determinant in whether your loan will be approved, and for how much. It is represented as a percentage and is calculated by dividing the amount of your debt by your income.
Calculate Debt to Income Ratio
Calculate your debt to income ratio in three easy steps:
- Enter your gross monthly income. If a particular category does not apply to you, just enter a zero or skip it.
- Enter your recurring monthly debt payments. Again, if a category does not apply, enter a zero or skip it.
- In most cases you should include your anticipated new mortgage payment, including principal, interest, real estate taxes and homeowners insurance, rather than your existing payment. Clarify this with your bank, however, to ensure that you both have the same interpretation.
- Look to the bottom of the widget to find your debt to income percentage. It has been auto-calculated for you.
What Your Ratio Means
In general, the lower your debt to income ratio, the better. Your new housing expense, not including other debt, should not exceed a debt to income ratio of 28 percent, according to Bankrate. Your total debt to income ratio, including other debt, should be 36 percent or less to qualify for a mortgage.