What Is A Debt-To-Income Ratio?

by Katharine Breithaupt (bright-hop) 12/08/2019

You know when you buy a home that your credit score matters, but do you see all of the numbers that matter to your financial picture when you’re buying a home? Your debt-to-income ratio is one of the most critical figures that will influence if you can get a mortgage and what type of rate you can get. 


What Is A Debt-To-Income Ratio?


This number is exactly what it states: the ratio of debt divided by your gross monthly income. Your credit report doesn't include any of this income information. This number is actually the best way to see if you’re living within your means or not. This way, your lender will know your monthly debt payments along with your monthly income.  


If your ratio of debt is high, you may not get a loan or get less desirable interest rates than if you had lower amounts of debt. Even if you have a high credit score, your debt-to-income ratio could affect these things. In reality, a higher debt ratio will make it harder for you to pay back your debt, so it’s important to you. 


How It’s Calculated


You can use an online tool to help you calculate your debt-to-income ratio. You can also use a simple formula if you’re up for doing some math yourself:


Divide your monthly debt payments by your monthly gross income then multiply that number by 100. For example:


Student loans: $400

Car loan: $300

Rent: $700

Income: $4,000 


1400/4000= 0.35 x 100= 35%


Household Ratio


You should also be aware of something called your household ratio. The household is the amount of home-related expenses which includes property taxes, prospective mortgage, home insurance, and more. These costs are divided by your monthly income to get this ratio as well. Obviously, your household debt adds to your financial commitments and is also put into consideration by your lender.    



What’s A Good Debt-To-Income Ratio?


It’s ideal that you keep your ratio less than 36%. Your household ratio should be even lower than this. It’s great to be debt free, but in the real world, that’s not always possible. Your best bet is to be responsible with your finances and work on paying your debt down as much as you can. Then, little by little all of the critical numbers that are required to get a mortgage will fall into place.  

    


About the Author
Author

Katharine Breithaupt (bright-hop)

The Wine Country is one of the chosen places on all the earth. I have lived here over 30 years in this extraordinary place. Over 20 years ago, I started representing both Sellers and Buyers and now have proven results and experience in Residential Homes, Luxury Estates, Farms/Ranches and income property here in paradise. I have been in the top 5% year after year in real estate sales, and it is for a reason.  

It takes an extraordinary agent with proven marketing expertise and negotiation strategies to close deals with the results you desire. I am a full time, full service Realtor with the networking connections you need. I produce results and closed sales because of my experience and behind the scenes contacts. As a Top Producer with Premiere Client Services and Global Reach, I will get you to your chosen goal sooner. In any market, it is important to choose a Top Agent that has MORE to offer. You will be my priority. From the finest photography, internet exposure, social networking and networking connections, you will be well-represented by me, first and foremost.  

Benefits to You: Multiple website portals; Free Seller Pak/Free Buyer; Pak/Free Home Analysis available upon request; Member Luxury Networking Group - Top agents of the $1 million plus range; Five Star Technology Training and Internet/Search Engine Optimization Exposure; Member of Marketing Masters Networking Group/Santa Rosa - former President - Top agents in Sonoma County all price ranges; Consistent Sonoma County Top 5% Producer year after year. Active member of BAREIS, CAR, NORBAR. Let's talk! I look forward to serving your needs!  

Vanguard Properties is San Francisco/Bay Area based with offices throughout Marin and Sonoma Counties as well as their international global affiliations. This dynamic, established company is a huge benefit to you. Vanguard aligns with my "Get More" philosophy, and you will get more.  

My husband/partner, Henry (Spud) Davis and I will cover your real estate needs throughout Sonoma County. With six grown children out of the house, we have the time, the energy and experience to devote to you. We support many non-profits with needs. We love to travel, and Spud's the chef so tell us about your favorite foods/recipes. Give me a call/text/email today to have a conversation about your real estate needs and how we can help make your dreams of Wine Country Living come true.