Transcript: How to calculate debt-to-income ratio
How to calculate debt to income ratio. Your debt to income ratio, or D T I is important because your lender uses it to see if you have enough cash flow to afford the mortgage you’re applying for.
Your debt to income ratio is the percentage of your gross monthly income that would go toward your total monthly obligations.
A good rule of thumb is that this amount shouldn’t exceed forty three percent of your gross monthly income. You can determine your total debt to income ratio by first calculating your monthly housing expenses, including mortgage principal and interest, property taxes, private mortgage insurance, homeowners insurance, and homeowners’ association fees, if you’re buying a condo.
And then calculate all your other monthly obligations, including car loans, credit card bills, student loans, child support, and alimony.
The total of these two calculations divided by your total gross monthly income equals your total debt to income ratio.
For example, let’s say you pay fourteen hundred dollars a month for your mortgage, including taxes and insurance. And you pay another two hundred and fifty dollars a month for an auto loan, and one hundred dollars a month for your credit cards, then your total monthly debt is seventeen hundred and fifty dollars.
Take your total monthly debt of seventeen hundred and fifty dollars and divide this by your gross monthly income of four thousand three hundred dollars. Your debt to income ratio, or D T I equals forty one percent.
Remember, debt to income ratio is just one of the factors reviewed by DCU. DCU loan officers are always available to discuss your specific situation.
For more information, call one eight hundred three two eight eight seven nine seven, go to DCU dot org backslash mortgage or a DCU branch.