What is target debt-to-income, or DTI ratio?
Debt to Income Ratio is the ratio between how much you owe each month on personal debt and how much you earn. It calculates the percentage of debt you carry vs. to how much money you make. It gives the lender an indication of how much additional debt you can take on. Add up your fixed monthly expenses such as your car payments, minimum credit card payments and any other regular debt obligations, such as monthly child support or student loans (you don’t have to include bills for things such as groceries or utilities). Add your expected housing payments (your mortgage payments plus, for example, private mortgage insurance, homeowners insurance and property taxes) and divide the total by your gross monthly income. Lenders typically say a DTI ratio should be no higher than 38 percent. For Loan Modifications the rule of thumb is: Payments must be affordable, but also pay off loan! An “affordable” payment typically is defined as a targeted percentage of the borrower’s monthly gross income. T
