These ratios are most often used by Mortgage lenders to see if you qualify for a particular loan. Usually, a higher ratio makes the bank more susceptible to risk or the homeowner defaulting. It is calculated by taking monthly debt payments (credit cards, personal loans, automobile loans, student loans, etc.) and dividing by your gross monthly income X 100. It is usually expressed in 2 numbers. E.g. a particular lender may say if you qualify if you have a 33/41 debt income ratio - meaning that 33% of your incomes goes to your non-mortgage debt, while 41% means that debt, including mortgage. Hope that makes sense.
you take your debts that are reported to your credit bureau (car payment, credit card payment etc...) and your estimated mortgage payment. example mortgage $1100/mo car payment- $350/mo visa - $ 20 (min payment) mc - $ 15 (min payment) gateway - $ 98/mo _________ $1583.00 mo. obligations Salary 50k/yr($50,000 divided by 12=$4,166.67 monthly obligatons $1583.00 divided $4,166.67 equals= 37.99 (about 40% debt ratio) * please note that other obligations such as utilities and car insurance etc.. are not included in your debt to income ratio
