Debt to Income Ratios - How Much House You Can Afford
Lenders are mainly concerned with a potential borrowers willingness and ability to repay a mortgage loan. There is no guessing - your loan will be granted or NOT based on your credit history and debt to income ratio. This ratio is critical in determining how much "house payment " a borrower can realistically pay for on a month-to-month basis.
anount owed/amount you earn=debt to income ratio
10% or less - Excellent 11% to 20% - Acceptable 21% to 35% - Overextended 36% or higher - Danger!
What is debt to income ratio?
Very simply debt to income ratio compares how much you owe compared to how much you earn.What is the debt to income ratio formula?
The formula is simple:anount owed/amount you earn=debt to income ratio
Amount Earned - income all sources
This is your combined monthly income, including child support, investment income or alimony.Amount Owed - Debts
Usually this is your combined monthly debts ie..monthly obligations. The amount of your combined monthly debts would be things like: major credit card payments, auto loans, department store credit card payments, student loans etc... Remember, you don't include rent, mortgage or taxes in the amount owed.What is considered a GOOD debt to income ratio?
Lenders vary with regard to acceptable debt-to-income ratios. Your best bet is to use the general guidlines below to gauge your finacial status.10% or less - Excellent 11% to 20% - Acceptable 21% to 35% - Overextended 36% or higher - Danger!