Debt to Income Ratio

Debt Ratio Calculator

What is target debt-to-income, or DTI ratio?

Debt to Income Ratio is the ratio between how much you owe each month on personal debt and how much you earn. It calculates the percentage of debt you carry vs. to how much money you make. It gives the lender an indication of how much additional debt you can take on.

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Debt to income ratio calculator:

Add up your fixed monthly expenses such as your car payments, minimum credit card payments and any other regular debt obligations, such as monthly child support or student loans (you don't have to include bills for things such as groceries or utilities). Add your expected housing payments (your mortgage payments plus, for example, private mortgage insurance, homeowners insurance and property taxes) and divide the total by your gross monthly income. Lenders typically say a DTI ratio should be no higher than 38 percent. Before you apply for any kind of credit, it also helps to get your Free Credit Score from all three bureaus (plus Complete Identity Protection from TrustedID, free for 14 days..

For Loan Modifications the rule of thumb is: Payments must be affordable, but also pay off loan!

An "affordable" payment typically is defined as a targeted percentage of the borrower's monthly gross income. Thirty-eight percent is common, though some lenders use a lower or higher figure, usually between 31 percent and 41 percent. The new payment must be sufficient to pay off the loan, sometimes with the term extended to 40 years or some of the principal deferred until the loan is refinanced or the home is sold.

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