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
This blog post has been brought to you by Parlay Mortgage & Property, Inc. Parlay Mortgage is a local mortgage lender in Lockport, Illinois. We are licensed in Illinois and Indiana, offering loans for both purchases and refinances. Any questions or concerns regarding rebuilding your financial and domestic affairs after divorce can be directed to our office.
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