How To Calculate Your Debt To Income Ratio – Loan Love Gives Advice In A Newly Posted Article
San Diego, CA (PRWEB) July 20, 2013 -- LoanLove.com is a borrower advice website that provides detailed insights into the mortgage industry in a fun and entertaining way. The team at LoanLove.com is devoted to help empower both first time and experienced homeowners with valuable resources, first-class knowledge and connections to top-rated industry professionals and has the mission of helping consumers and borrowers to obtain the latest information on mortgage lending trends, the real estate market and the U.S. financial landscape in order to help them obtain a home loan that they will love. Loan Love continues to offer the best advice with their new article on “How To Calculate Your Debt To Income Ratio”.
The Loan Love article says: “To determine your income, lenders will perform an income and employment verification by contacting your employer and also by looking at your tax returns. Once they know both – your income and your debt obligations – they compare what you owe to what you earn to determine what’s called your “debt to income ratio”- or DTI, an important tool in helping lenders determine how much mortgage you can afford (based on their own requirements and safety margins). There are two types of DTIs, known as front-end and back-end DTIs (some lenders may refer to them as the housing expense and total DTI ratios, respectively). Learn how to calculate your debt to income ratio and you’ll be ahead of the power curve. “
The article explains the difference between the front end DTI and back end DTIs and how to calculate each ratio. It explains that the front end ration look at how much of a borrower’s gross monthly income would be used up in paying for their mortgage payments, which is defined as the principal and interest on the loan in addition to the real estate taxed and homeowners insurance. Loan Love explains:
“Although different lenders may have different acceptable safety margins, the industry standard assumes that your mortgage payment should not exceed 28% of your gross monthly income. You can get a ballpark idea of your front-end DTI by multiplying your gross monthly income by 28%, or if you have your tax returns handy (and if you’re shopping for a mortgage, you should), multiplying your annual income by 28% and then dividing by 12. The answer is the maximum front-end ratio – that is, the upper monthly mortgage payment limit for most lenders.”
The article then goes on to explain about the total debt ratio, also known as back-end DTI: “Unlike the front-end ratio, the back-end ratio looks at how much of your monthly gross income is dedicated to total debt payments, including credit cards, alimony and support, car loans, student loans and any other debt obligations in addition to your mortgage (principal + interest + real estate taxes+ homeowners insurance). Like the front-end ratio, there’s a magic number above which most lenders fear to tread; in this case, it’s 36%, which means that all your debts should not exceed 36% of your total monthly income”
As has been noted, different lenders have different safety margins, so the borrower’s calculation will likely differ from the lender’s figures. However, having a rough idea of the DTI is really useful when a borrower is trying to figure out how much house they can really afford, so it is worth it to take some time to do the calculations before going house shopping.
For more information on calculating debt to income ratios, visit LoanLove.com for the full article.
Kevin Blue, LoanLove.com, http://loanlove.com/, 949-292-8401, [email protected]
Share this article