How is debt to income ratio calculated?
Debt to income ratio is the percentage amount of a person’s monthly income that is being used to pay off your debts. This includes the monthly payments that you have to make on your credit card debts, housing debts and any other such debts. However, the creditor will analyze your debt to income ratio before they actually approve your loan. If you apply for a mortgage or a car loan, the creditor will at first, ask you to show the necessary documents of your monthly income. Then, the creditor will check your debt to income or DTI ratio and find out whether or not you are eligible to get a loan. Your credit score will help your creditor to understand whether or not you had been able to manage your finances in the past. However, you need to keep in mind that each lender has his/her debt to income limit criterion for approving the loan request.
What is debt to income calculator?
Debt to income calculator is a solution to your debt problems. It helps you understand what exact amount of loan you will be able to manage at a time. While calculating your debt to income or DTI ratio, you need to include all your debts such as mortgage payments, house rent, tax, etc. In order to use this calculator, you need to provide some information such as your credit card debt payments that you will have to pay every month. The calculator also helps you solve the complicated calculations that you would otherwise, had to do it on your own.
How is debt to income ratio calculated?
While calculating your debt to income ratio, you need to add up your total monthly income. This includes your monthly income and the commissions or the bonuses that you may qualify for. If you find that your income varies every month, you may take the monthly income of last two years. You should also include any extra money that you may earn by giving rent in your house or any other such additional income. Then you need to add up all your outstanding debts. This includes your credit card bills, any rent that you need to pay every month, loans and mortgage payments. You need to divide your monthly debt payments by your total monthly income. By this way, you calculate your debt to income ratio.
If your debt to income ratio is high, you will have problem in taking out a loan. But, if your debt to income ratio is low, it shows that you will be able to manage your debts properly and repay them in time. So, it is advisable that when you choose a debt to income or DTI calculator to calculate your debt to income ratio, you should select it from an authentic website in order to avoid wrong calculations.
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