Your debt-to-income ratio is an important factor in the borrowing process and shows lenders your ability toYour debt-to-income ratio refers to how much debt you have in relation to your income. This is an important consideration because when a lender approves a loan, they want to make sure you have enough income to pay back the loan. How is debt-to-income ratio calculated? , "Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income.
Take that number and multiply it by 100 to get your debt-to-income ratio, which in this case would be 30%. In other words, 30% of your income is going toward your debt obligations. If you have high debt loads and want to apply for a mortgage or other type of loan, you might be concerned about your debt-to-income ratio. Each lender will evaluate your DTI, so you want to know what yours is and if it will prevent you from getting a loan.
So if you want a hard and fast number to go by, 36% or lower is ideal. But the CFPB offers more specific debt-to-income ratios for certain situations. Lenders want to know that, given your current financial situation, you can afford to make payments on your current loans while also taking out a new loan.
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