What is the Debt to Income ratio?
When it comes to lending money, lenders are often concerned about the ability of the borrower to repay the loan. In the mortgage market there are many requirements set up according to needs, wants and research that acts as an indicator of a borrower’s ability to handle monthly loan payments. One of the most reliable indicators is the Debt to Income ratio.
The Debt to Income ratio is the ratio of a borrower’s monthly income against the monthly debts or bills that they have (exclusive of federal taxes). The percentage obtained from this ratio provides lenders with a reliable number on which to base requirements for loans. However, it is not just lenders that can take advantage of the Debt to Income ratio, borrowers can use this value to gauge their attractiveness to a lender and also to see which mortgage program is financially sustainable as an option.
How is the Debt to Income ratio calculated?
Calculating the DTI is extremely easy and only requires two pieces of information:
- The monthly income of the borrower (excluding taxes)
- The borrower’s monthly debt
What is a Debt to Income Ratio Calculator?
Debt to Income ratio calculators are free online tools, they are available on the websites of different lenders. Using these calculators you can find out your Debt to Income ratio and see where you stand against the requirements for mortgage approvals of different lenders. Just because one lender has a high requirement for a loan type does not necessarily mean that other lenders will have the same requirement. It is always worth the while to shop around and then understand which lender has requirements for the DTI that match what you are looking for.
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