{"id":26125,"date":"2019-10-07T10:00:09","date_gmt":"2019-10-07T18:00:09","guid":{"rendered":"https:\/\/www.hayden-homes.com\/?p=26125"},"modified":"2024-06-04T14:26:25","modified_gmt":"2024-06-04T22:26:25","slug":"debt-to-income-ratio","status":"publish","type":"post","link":"https:\/\/www.hayden-homes.com\/blog\/debt-to-income-ratio\/","title":{"rendered":"Debt-to-Income Ratio: What is it and Why it Matters"},"content":{"rendered":"

\"Young<\/a>Debt-to-income ratio. If you\u2019re in the process of applying for a home mortgage, you may have come across this term but do you understand what it means and how it can affect the loan application process? The debt-to-income ratio is how lenders evaluate your borrowing habits. Here\u2019s what the debt-to-income ratio means and why it\u2019s important.<\/p>\n

What\u2019s debt-to-income ratio?<\/h2>\n

Simply put, the debt-to-income ratio is the total of all your monthly debt payments divided by your gross monthly income; it\u2019s expressed as a percentage). Lenders use this number (along with your credit history) to determine your ability to repay a loan.
\nCalculating your debt-to-income ratio is simple: add your monthly debt payments \u2013 this includes credit card payments, car, personal, or student loans, and housing expenses (i.e. rent or your current mortgage payment if applicable). Next, divide that number by your gross \u2013 or pretax \u2013 income. Finally, multiply the decimal number by 100 and you\u2019ll end with your ratio percentage.<\/p>\n

Why is my debt-to-income ratio important?<\/h2>\n

Lenders and banks use your ratio to determine your ability to pay back your debts. They use the understanding behind your debt load to determine what their lending limits will be.<\/p>\n

What\u2019s a good debt-to-income ratio?<\/h2>\n

While the maximum debt-to-income ratio varies by lender, the lower your debt-to-income ratio the better. In general, a ratio of 35% or less is ideal. A ratio of 36% to 49% is acceptable but could be improved as your debt load could potentially become unmanageable. A debt-to-income ratio 50% and above will make it difficult to qualify for a loan.<\/p>\n

How do I improve my debt-to-income ratio?<\/h2>\n

Is your debt-to-income ratio a bit higher than 36%? Thankfully it’s possible to reduce it. Here are some options:<\/p>\n