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Debt-to-Income Ratio
What is a debt-to-income ratio?
All people considering refinancing need to understand how DTI or "debt to income ratios" is determined. Underwriters across the country use the "debt to income ratio" to compare the amount of your debt (minus your mortgage payment) to your gross income. In most cases, the ratio is calculated on a monthly basis. For example, if your monthly income is $2,500 (gross income) and you have $500 a month in obligations for loans and credit cards, your debt-to-income ratio is 20 percent ($500 divided by $2,500 = .20).
Debt-to-income ratio relates your liabilities to your personal income.
Debt-to Income Ratio = Total Debt Payments / Monthly Gross Income |
How do I calculate my debt-to-income ratio?
The first step in calculating your debt-to-income ratio is figuring your gross monthly income, which is the amount you earn prior to all deductions. If you're paid every other week, multiply your take-home pay by 26, then divide by 12. This is your monthly take-home pay.
If your revenue is unstable, calculate your monthly net pay by dividing the previous year's annual net pay by 12. |
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