Debt to Income Ratio
Your debt-to-income ratio is all your minimum monthly debt payments on your credit report, plus your new monthly
mortgage payment (Principal, Interests, Taxes, Insurance, and Homeowner's Association if applicable), divided by your gross monthly income. (Gross monthly income is your income before taxes and deductions).
For example, if you pay $2000 a month for your mortgage, $400 a month for an auto loan, and $300 for monthly minimum credit card payments your total monthly debt payments are $2,700. Your gross monthly income is $6,000.00.
For example, if you pay $2000 a month for your mortgage, $400 a month for an auto loan, and $300 for monthly minimum credit card payments your total monthly debt payments are $2,700. Your gross monthly income is $6,000.00.
Take $2,700 divided by $6,000= 45% debt to income ratios.
Most lenders like to see a debt to income ratios 50% or below but some mortgage loans can be approved with up to a 55% debt to income ratio.
- If you pay alimony that appears on a divorce decree or child support that is court ordered these monthly payments must also be added to your debts payments even though they don’t appear on your credit report.
- Student loans must be deferred for one year or longer after the close of the home to not be considered a monthly debt payment. If they come due before the home closes escrow, they must be counted as a monthly debt payment at 1% of the balance of the loan.
- If you receive alimony or child support income that is court ordered and will continue for 3 years or longer you can add it to your income to help you qualify for a home loan.