Debt To Income Ratio Defined The debt to income ratio compares the size of your income with the size of your debts. This is measured as a monthly ratio. For example, if you make $10,000 per month and your debts you need to pay are $3,000 per month then your debt to income ratio is 30% (3,000 divided by 10,000). Why The Debt To Income Ratio Is Important Lenders want to make sure a mortgage applicant is able to consistently pay their new mortgage. They measure your currently monthly debts (car payments, credit cards, student loans) and add in what your future mortgage payment will be if you are approved. If your total current and future mortgage debt is too high, the lender is less likely to approve your loan. What Level Of Debt To Ratio Income Is Acceptable? It changes from lender to lender. Many lender do not want to see your total monthly debt to ratio income to be over 38%. Some lenders will go as high as a 55% ratio. Keep in mind that the income here is pretax income. Will The Debt To Income Ratio Stop Me From Getting A Loan? Not necessarily. Many lenders allow for "stated loans". This means that you state an income level on your application but do not document it. This can be for many reasons, including having a commission based job where compensation can fluctuate month to month. If you state a high enough level of income then the debt to income ratio may work. Keep in mind that the stated income level has to be appropriate for your profession. |
