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How to Figure Debt to Income Ratio  by: Gary Gresham Ever wonder how to figure out you debt to income ratio? Lenders use your debt to income ratio to help them evaluate your creditworthiness and debt load. Mortgage lenders use your debt to income ratio to calculate what percentage of your income is available for your monthly mortgage payment after all of your other monthly fixed expenses are paid. To calculate your total debt to income ratio take your total monthly fixed expenses and divide it by your gross monthly income. Monthly fixed expenses are debts like your monthly mortgage payment, lease or car payment, credit card and any other revolving credit balances that will take more than eleven months to pay off and alimony or child support. Your gross monthly income is what you make before taxes are taken out. This includes your wages overtime, commissions or any bonuses you get on a regular basis. Your total monthly fixed expenses divided by your gross monthly income is your total debt to income ratio. It's what a lender calls the back end of debt ratio. If you remove the monthly mortgage payment that is what a lender calls the front end debt ratio and that is how they calculate how much of a monthly mortgage payment you qualify for. When you total your monthly debts, make sure you use only the minimum payment on your credit card statements. You don't have to include utility bills or any debt that will be paid off in fewer than eleven months. Here is a sample debt to income ratio calculation: Total Gross Monthly Household Income = $6,000 Total Monthly Fixed Expenses = $2,160 $2,160 Divided By $6,000 = 36 Total Debt To Income Ratio = 36% A mortgage lender likes to see your front end debt ratio between 25% and 28% to qualify for a mortgage loan. A good total debt to income ratio with that monthly mortgage payment factored in should not exceed more than 45%. These figures can go higher if you have a high credit score because that means you have better creditworthiness and will likely pass a lenders home loan guidelines easier. That's how to figure debt to income ratio and why it is important especially when you apply for a home loan. Copyright © 2005 Credit-Repair-Facts.com. All Rights Reserved. About The Author Gary Gresham This article is supplied by http://www.credit-repair-facts.com where you will find credit information, debt elimination programs and informative articles that give you the knowledge to correct your own credit and credit report. For more credit related articles like these go to: http://www.credit-repair-facts.com/articles_1.html. This article was posted on October 05, 2005   View More Videos from the "Business and Finance" category: Why Tax Should Fund Development How to Build Green The Power of Recognizing Your Employees Employment as a Buy Signal   Read More Articles from the "Business and Finance" Category: Ultimate Guide to Quickly Selling a Home by Oliver Darraugh Telecom OSS - Telecommunications Service In The Fast Lane by Lisa Lyon HR Jobs: Texas Opportunities by Silas Reed The Great Way To Buy Penny Stocks by Manseo Sharma Financial Crises, Global Capital Flows and the International Financial Architecture by Sam Vaknin, Ph.D. Understanding this New Professional: the Chief Information Officer CIO by S. Maurer Looking For a Safe Investment? Try a Certificate of Deposit by James H. Dimmitt How To Start Your Own Baby Food Business Part #5: Fresh, Organic, and Local by Mischelle Weedman Davis Banks - Friend? or Foe by Samuel Quino Peoplestring On The Move, Darin Myman Interview With Pimm Fox on Bloomberg TV Report by John Robbins << Back to "Business And Finance" Index

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