What is Debt-to-Income Ratio?

What is Debt-to-Income Ratio?


– What is debt-to-income ratio? We’re gonna get in to the
nitty gritty right after this. (rock music) Before we get in to it, we would love it if you would subscribe to the channel. We talk about all things
buying and selling real estate, and occasionally, what it’s
like to be a real estate agent, so please subscribe. We would love it if you would. Now, debt-to-income ratio. If you have applied for a home mortgage, you have probably run in to
the term debt-to-income ratio. If you haven’t applied for a home mortgage and you’re just thinking
about buying a home, if you’ve done any sort of
research about what it takes, you maybe have run in to this
term, debt-to-income ratio. Now it’s pretty simple. When you apply for a loan, one of the main things
that a lender will look at, aside from your job, the cash
on hand, your credit score, they will look at your
debt-to-income ratio. So currently, how much debt do you have relative to your income, and then they take it a step further and they look at, after
you purchase a home, how much debt will you have
relative to your income. Now, most lenders will want to keep you somewhere in the 40% range,
meaning 40% of your income is going towards debt service. So that would include your mortgage that they’re going to give you, that would include if you have a car loan, student loans oftentimes as well, and any other type of loan. They want to keep that in the 40% range. Now lenders will push
it up to 45% sometimes, and depending on all
extenuating circumstances around your financial picture, they can push it upwards of
50% debt-to-income ratio. But that’s really towing the line. And lenders, typically, if
they’re somewhat conservative, are trying to keep it under that. If you’re coming in to
the approval process for your loan with an already
high debt-to-income ratio, you can work with your lender to look at different ways that you could
pay off some of that debt, so that when you obtain
your home mortgage, you’re in an acceptable ratio. So that might mean paying off a car loan, maybe paying down some student debt and doing so as a part of
your pre-approval process so you can get approved
in the first place, or maybe approved for
a little bit more home that you’re wanting. So that’s it for now. Debt-to-income ratio is pretty simple. How much debt do you have? How much income do you have? And you compare those two things. Lenders really look at that and it’s an important number
that they’re gonna cite when they’re talking to
you about your finances. I hope you found this helpful. For more tips and tricks,
follow us, subscribe to us, sign up for our e-mail newsletter. We’d love to have you be a part of what we’ve got going on right here. See ya, bye. (rock music)

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