Understanding Debt-to-income Ratios
Once you’re ready to buy the home of your dreams, you’ll begin to hear a lot of mortgage terminology being thrown around. A common term you’ll certainly hear is “debt-to-income ratio”. Unless you’re a math wizard, this type of lingo can sound intimidating, but it doesn’t need to. Debt-to-income ratios are easy to figure and also use to your advantage; giving you the opportunity to know much house you can afford before you start looking. The debt-to-income ratio is basically the way your mortgage lenders will decide how much money you can comfortably afford to borrow . It is the percentage of your monthly gross income (before taxes) used to pay your monthly debts (not your monthly living expenses). Two calculations are involved, a front ratio and a back ratio, written in ratio form, i.e., 33/38. What Debt-to Income Ratio Numbers Mean The first number in the ratio indicates the percentage of your monthly gross income used to pay housing costs, such as principal, interest...