How to calculate your debt to income ratioPosted: March 11, 2015
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