What is my Debt Ratio? |
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Answer:
Mortgage lenders don’t just approve anyone for In other words, your monthly debts can’t exceed a percentage of your monthly income. Years ago the debt ratio for a home loan was low, approximately 36%. Because home values have increased in some housing markets, most mortgage lenders accept a higher debt ratio – up to 42%. Individuals with a low debt ratio can usually qualify for a mortgage loan, and enjoy a reasonably low rate. Some lenders will approve applicants with debt ratios that exceed 42%. Yet, these borrowers normally pay a much higher interest rate. Calculating your debt ratio is simple. Take your total monthly income, and divide this amount by 42%. Let’s say you earn $3,000 a month. Ideally, your total debts including the mortgage payment should not exceed $1,260. If you don’t have any other debts, then you can afford a home with a monthly payment up to this amount. On the other hand, if you have an automobile loan, student loan, or credit card debt, then you qualify for a lesser amount. Trackback(0)
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