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Debt-to-Income Ratio: Where Should You Be?

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Debt to Income Ratio

When looking to buy a home, your debt-to-income ratio is an important number for lenders. Some even say it's as important as your credit score.

Your debt-to-income ratio is a personal finance measure that compares the amount of money that you earn with the amount of money that you owe creditors - your debt to overall income. For most people, this number is used when trying to get financing to purchase a home, as it gives lenders an idea of how much mortgage you can afford.

To find out what your debt-to-income ratio is, add up all you recurring debt for each month - this includes mortgages, car loans, student loan, minimum monthly credit card payments, etc. - and divide it by your gross monthly income (before taxes).

A "good" ratio from the perspective of most lenders is anything below 36%. If you're in the 37 - 43% range many lenders will still give you a loan, but if you're above 43%, you may want to reevaluate how you're spending your money. Lenders follow the automated underwriting system finding for both Fannie Mae and Freddie Mac. This dictate the approvable level for your debt ratio.

There are, of course, always exceptions to the debt-to-income ratio "rules". Speak with a qualified mortgage lender about your debt to income ratio to see what lending options may work for you.

Citywide Home Loans makes the loan process simple. Visit www.citywidehomeloans.com to see how much home you can afford and find a loan program that's right for you.

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