Calculating Your Debt To Income Ratio In 2 Easy Steps

Calculating Your Debt To Income Ratio In 2 Easy Steps

Calculating Your Debt-to-Income Ratio in 2 Easy Steps

 

Have you ever sat down and calculated exactly how much money you spend each month on bills? If so, you are already halfway to calculating your DTI. In essence, your debt-to-income ratio is the amount of money you have left over after paying all your monthly expenses. But if you want a bank to fork over hundreds of thousands of dollars on loan to you, you have to get specific.

What Is Your DTI?
 
What the bank is trying to ascertain is whether you have enough money left over after paying all your debts each month to afford a mortgage payment; the lower your DTI ratio, the better your chances of getting a loan.
 
Your goal is to have a debt-to-income ratio that is lower than 35%. At 50%, most banks will turn you down because, for all intents and purposes, you are living paycheck to paycheck, and a mortgage payment would be too big of a financial risk to the bank. But at 35%, with debt taking up only around a third of your income, you have more than enough to cover the expense of a mortgage.
 
How to Calculate Your DTI
 
Debt is only half of the equation. The other half is how much income you bring in. That number is easy if you have only one source of income. You don't count bonuses or gifts or any other irregular income.
 
1. Use all sources of regular income that you receive every month. That includes your salary, retirement income, Social Security, dividends, etc.
 
2. Next, divide your total monthly payments or debt by your monthly income. So what kinds of expenses or debts do you include? These debts will include amounts that you owe based on a contract, such as your rent, car payment, credit card payments and student loans.
 
You don't, however, include expenses like electric, gas and other utilities that vary from month to month. You also don't include taxes in your DTI calculation, either for your expenses or for your income. Use your total gross income before taxes.

Ways to Improve Your DTI
 
If you find out that you have a DTI that is 50% or higher, you will have to spend some time eliminating some of your debt and/or increasing your income before you are ready to buy a house. To improve your DTI, try:
 

  • Paying off debts.

  • Paying down credit cards (closing accounts can hurt your DTI).

  • Pay all bills on time for one year.

  • Refinance your debt (reduce your interest rate).

There are many websites that offer their own debt-to-income ratio calculators. Here are a few from Bankrate, Money Under 30 and Finance Solutions:
 

 
Was this helpful? If so, share this information with someone you know. Feel free to contact us for more information on these and other homebuying tips. 


Nicole Espinosa Headshot
Author:
Phone: 972-832-2755
Dated: May 11th 2016
Views: 539
About Nicole: Nicole is a leading Short sale expert in the Dallas Fort Worth market. Before Nicole did short sale...

Property Search








RSS Feed

View our latest blog posts in your RSS reader. Click here to access. RSS

Search Blog

Recent Blogs

Strong Housing Stats For Anna TX In 2016 - The Anna housing market had a stron
What Does A Sellers Agent Do - It's the job of the seller's agent t
Walsh Community Technology Update - For a price already included in HOA
Will Housing Affordability Be A Challenge In 2017 - Some industry experts are saying tha

Our Bloggers

Comprar Casa DFW * - 1
Kim Allman - 5
Cara Balderas - 30
Tami Bennett - 45
Jessica Boozer - 18
Rhonda Borgne - 1
Olivia Borowski - 1
Jennifer Boyd - 2
Deborah Boyd - 16
Jamie Brannagan - 1
Annette Bruen - 20
Moira Brunken - 11
Beverly Bryant - 23
Sherry Cabrera - 359
Ana Cantu - 1
Lisa Cardillo - 52
Bob Cardillo - 4
Shea Cargile - 12
Tori Cecil - 3
Lucina Cervantes - 11
Troy Copeland - 11
Gregory Cornett - 2
Angela Cotten - 57
Missie Craig - 12
Greg Cunningham - 2
Leah Ecob - 15
Kristine Edens - 3
Jill Elliott - 99
Laneal Ernest - 9
Nicole Espinosa - 27
Christopher Evans - 1
Heather Feragotti - 8
Mark Fischer - 2
Susan Florsch - 12
Jennifer Flynn - 6
Leslie Fogle - 101
Larry Frassinelli - 6
Chad Gabriel - 58
Malci Gariani - 1
Shalee Garza - 10
Cassie Gillock - 2
Ryan Gonzales - 3
Christina Gonzalez - 5
Wilma Goodwin - 2
William Graves - 5
Sandra Hunt - 74
Bill Hurd - 3
Gary Hutchings - 20
Rachel Jama - 47
Trenton Johnson - 15
Felicia Johnson - 78
Jemi Khan - 26
Leigh Klotz - 5
Amber L Johnson - 8
Michele Lafortune - 22
Wanda Lewis - 2
Mark Linder - 1
Noreen Lodhi - 9
Stacy Lynn Massar - 27
Hiwot Melaku - 1
Jennifer Menting - 17
Mikki Migis - 8
Richard Mikus - 1
Sean Moniri - 21
Naddia Morales - 10
Keith Moses - 9
Mark Mulch - 19
Erick Murphy - 6
Steve Murray - 1
Julie Nicholson - 10
Nikki Okpuzor - 3
Alan Oliver - 7
Kelly Oltmann - 4
Kaysone Orlando - 1
Holli Paddio - 3
Ancy Philips - 7
JP Piccinini - 48
Julie Ann Pickering - 85
Ann-Marie Pope - 2
Joshua Putman - 111
Mimi Rader - 1
Shelia Randolph - 33
Terri Anne Ray - 1
Teneka Ray - 1
Go 2 Girls Realty - 173
Bethany Rowan - 15
Kristi Roy - 1
Kelly Rumney - 9
Amy Jo Saenz - 3
Linda Scardis - 4
Sandy Setliff - 210
Christine Shannon - 29
Rene Sinclair - 27
Shelby Smith - 3
Bryce Smith - 5
Monica Solkhon - 1
Rodrigo Sotomayor - 16
Brent Stack - 1
Jenna Stanley - 9
Kelley Stubbs - 3
Melodie Sulgrove - 1
Seana Taylor - 205
Mary Taylor - 14
Julian Taylor - 17
Erica Taylor - 40
Angela Taylor - 1
Karla Terrell - 2
Joey Thomas - 2
Jason Todd - 24
Andrea Trimble - 55
Miguel Umana - 6
Staci Van Allen - 12
Diane Velez - 17
Debbie Viverito - 132
Nick Walton - 75
Spring Weeks - 8
Michael Worley - 160
Keisha York - 30
Debbie Zurita - 17

Saved Properties

This is a list of your favorite properties. We will email you if a property is reduced or leaves the market.

Click 'Save' to add a property to this list.

Register / Login

New & returning visitors please enter your information to login.

By clicking 'register' you are agreeing to our terms of use & giving us expressed written consent to contact you.

Questions? Comments? Complaints?

This message will go directly to the head of our team.

Location & Address

JP And Associates REALTORS
6175 Main Street #355 Frisco Texas 75034
Frisco, TX
972-375-9448
4692875503

Other Locations