Debt To Income Ratio
When applying for a mortgage, you’ll hear a great deal about your debt-to-income ratio. This is a ratio that mortgage professionals use to illustrate a borrower’s’ capability to pay their monthly mortgage payment. Your debt-to-income ratio is expressed as a percentage; how much you spend divided by how much you make.
Since mortgage payments are made monthly, we evaluate your monthly obligations and liabilities in relation to your monthly income. A borrower that spends $25 of the $100 he or she makes every month would have a 25% debt-to-income ratio, i.e. they only spend 25% of what they make. This is important because right away, it tells the borrower and the lender how much house the borrower can afford. Remember that the debt-to-income does not include utility payments, groceries, gas, or other purchases made as needed throughout the month. In reality, a person spends more (often, much more) than what their debt-to-income expresses.
There is no “ideal ratio,” but there is a limit to what your ratio can be and that depends on what kind of loan you’re applying for. In most cases, a debt-to-income ratio for an FHA or VA loan can be as high as 56.99%, while conventional loans cap off at 50%. Improving your debt-to-income ratio can be as simple as paying off credit cards; a card with a $0 balance can be excluded from your liabilities.
Madison Jones | Mortgage Consultant
Parlay Mortgage & Property, Inc. | 16612 W. 159th Street, Suite 201 | Lockport, IL 60441
Corporate NMLS # 218753 |IL License # MB.6760430 | IN License # 218753
Office: 815-838-6613 | Fax: 815-838-6614 | Cell: 815-630-9730 |
E-mail Madison.Jones@parlaymortgage.com Web: www.parlaymortgage.com
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