Debt Ratio Question

Discussion in 'Credit Talk' started by Lillian, Nov 6, 2000.

  1. Lillian

    Lillian Guest

    What does 35% debt to income ratio mean?
  2. ALAN

    ALAN Well-Known Member

    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.

    SIERRA Guest

    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
  4. Lillian

    Lillian Guest

    Thank you. This is very clear and understanding.

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