CalcuNation

What is debt ratio? How do you calculate debt ratio?

Sometimes referred to as debt to income ratio, or income to debt ratio,

the Debt Ratio is a number used to compare the amount of monthly debt

you carry to the amount of monthly income you have. This ratio is a key

component to qualify for many mortgages.

To calculate the debt ratio, you compare your house payment to your

total monthly gross income and your total monthly payments to your total

monthly gross income.

Example: Alpha Bank looks for a debt ratio of 29/35 to qualify for a new

mortgage. This means that your house payment can not exceed 29% of

your total monthly gross income and your total monthly payments

(house payment, car loans, credit cards, loans, etc) added to your

house payment can not exceed 35% of your total gross monthly income.

If your total monthly gross income is $3,000 before taxes, your house

payment (PITI) can not exceed 29% of $3000, or $870.

In addition to this, your total monthly minimum payments on house

payment and other debts (credit card, loans, etc) can not exceed 35%

of $3000, or $1050.

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