Posted on June 18, 2009 at 2:34 am I've been making a number of credit applications with lots of lenders and they ask me for my debt to income ratio. Can anyone explain to me how to do this? Thank you and have a good one

Posted on June 18, 2009 at 4:23 am This is what you need to do. Multiply your monthly gross salary by 0.36, or 36%, which is the ideal DTI ratio set by lenders. So if for example you earn $2500 monthly, the only amount that you need to pay for your debts should be at $900. that's your ceiling amount. Anything higher than that would give you difficulty in making the right budget and paying for your other expenses

Posted on June 18, 2009 at 4:50 am Huh? I don't get it. Why should it be 36%. And which bills should be included? Are my monthly expenses part of this?

Posted on June 18, 2009 at 5:07 am Thirty-six percent is the rate set by mortgage lenders. When your DTI ratio is at that rate, it means that you are living within your means, able to make meet your monthly obligations, and working within budget. The percentage includes the following- Housing expenses- Credit card payments- Child support & alimony- Student loan payments- Personal loan payments

Posted on June 18, 2009 at 5:41 am Try to figure out how much is your gross income first. Gross income refers to how much you are earning before taxes and other deductions; net income, on the other hand, refers to how much you take home each payday.Next, make a list of all the debts that you're currently taking care of.  Purple Cow gave us examples for that earlier. Indicate how much you're paying for each item every month. Do not include your monthly expenses in the list, like grocery expenses and utility bills.Add up everything that you're currently paying for, and divide the total to your current monthly income.For example:Monthly gross income $5500Total amt of monthly payables: $2345broken down into: *Medical bills - $650*Student loan - $500*Mortgage payment - $1000*XYZ Department Store card - $195($2345 / $5500 = 0.42, or 42%)Clearly this person has a high DTI ratio because s/he goes beyond the 36% requirement. They may have difficulty in making monthly bill payments, and as a result, lenders may not have much confidence in his/her ability to keep with their monthly obligations

Posted on June 18, 2009 at 5:59 am Just so you know, 36% refers to the collective DTI ratio for individuals. This is called a back-end ratio. There is also another form of DTI ratio, which is called the front-end ratio. Instead of including the other debts, only housing expenses are computed. That means rent for the renters, and house payments for the homeowners. The ratio is set at 28%.

Posted on June 18, 2009 at 6:24 am Right, and mortgage lenders utilize the 28/36 rule, and this is a gauge they also use to see if the consumer is eligible for mortgage. However, the Federal Housing Authority grants loans to borrowers with a 29/41 DTI.

Posted on July 24, 2009 at 8:43 pm When doing mortgages, you can have a ratio upwards of 50% and some lenders will still give you a loan, it depends on your credit score. For FHA/USDA loans usually 41% is the top level. For a convent. loan it can go higher.Lenders will look at your Before Taxes Monthly Income, and compare that to your monthly debt, which includes student loans, credit cards, judgments, anything that may show up on your credit report. They will NOT count utilities, car insurance, etc. Generally you want that ratio to be around 35%.