How Is Debt To Income Ratio Calculated?
Debt-to-income ratio compares how much a person owes on credit cards and loans to how much that person earns. Lenders use debt-to-income ratio to determine how much you should be allowed to borrow.Monthly IncomeAdd up your monthly income from all sources including wages, commissions, investments, self employment and any other regular income. If your income varies, average it for a period of several months or a year.Monthly Debt PaymentsAdd up your monthly debt payments from credit cards, loans and mortgage and/or rent payments. If you pay different amounts on credit cards each month you can use the minimum required amount.CalculationDivide total monthly debt payment obligations by your total monthly income to get your debt-to-income ratio. For example, if your monthly debt payments are $1,200 and your monthly income is $5,000, your debt to income ratio is 1,200 divided by 5,000 which equals .24.LendersLenders would say you have a score of 24. Lenders become concerned when the score is
