How to calculate your debt to income ratio

Qualified mortgages require debt-to-income ratios of no more than 43 percent.

The debt-to-income ratio is a method for a lender to measure a borrower’s ability to manage the payments made every month in order to repay the money borrowed. To calculate a debt-to-income ratio, a lender will add up all of a borrower’s monthly debt payments and divide that number by the borrower’s gross monthly income. Gross monthly income is the amount of money a borrower earns before taxes and other deductions are removed.

If you find that your debt to income ratio is too high, you could:

  • Use a larger downpayment to reduce the loan amount.
  • look for a lower priced home
  • Pay off the balances on your existing debt
  • increase your monthly income

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