Use our Debt to Income Ratio Calculator to determine your financial health and whether you can afford to take on more monthly payments.
You can input your monthly recurring Debt, monthly Income, to see how much monthly recurring debt you can comfortably take on.
Why is Debt-To-Income Ratio so Important?
Your DTI ratio is an important part of your overall financial health, in addition to your credit scores. When you apply for credit, lenders evaluate your DTI to help determine whether you can afford to take on another payment. Your debt-to-income ratio (DTI) compares how much you owe each month to how much you earn. Specifically, it’s the percentage of your gross monthly income (before taxes) that goes towards payments for rent, mortgage, credit cards, or other debt. Calculating your DTI may help you determine how comfortable you are with your current debt, and also decide whether applying for credit is the right choice for you. There are two components mortgage lenders use for a DTI ratio: a front-end ratio and back-end ratio. Here’s a closer look at each and how they are calculated: Front-end ratio, also called the housing ratio, shows what percentage of your monthly gross income would go toward your housing expenses, including your monthly mortgage payment, property taxes, homeowners insurance and homeowners association dues.Back-end ratio shows what portion of your income is needed to cover all of your monthly debt obligations, plus your mortgage payments and housing expenses. This includes credit card bills, car loans, child support, student loans and any other revolving debt that shows on your credit report.What is an ideal debt-to-income ratio?Financial Advisers and Lenders typically say the ideal front-end ratio should be no more than 28 percent, and the back-end ratio, including all expenses, should be 36 percent or lower. In reality, depending on your credit score, savings, assets and down payment, lenders may accept higher ratios, depending on the type of loan you’re applying for.For conventional loans backed by Fannie Mae and Freddie Mac, lenders now accept a DTI ratio as high as 50 percent. That means half of your monthly income is going toward housing expenses and recurring monthly debt obligations.
To calculate your Debt to Income Ratios with accuracy, Contact us today for a consultation!