Wednesday, January 24, 2007

Debt To Income Ratio: Yet another number you must know

Everyone knows how important it is to have a decent credit score. Many actually know what their score is. Others not so much. How many people do you know who can calculate their debt to income ratio? As a former mortgage lender, I remember explaining over and over, it is not just your credit score that affects your loan approval and rate. Many factors are considered and one of the more important is how much debt you have as a percentage of your income.

DTI is based on your total monthly obligations. (Credit card payments, mortgage payments , auto loan payments, student loan payments, etc. Yes, the word of the day is payment. Be sure to use the monthly payment amounts and not the total balance of the loan.) The totals are divided by your gross monthly income. It will tell you who you work for every month. The higher the percentage the more of your money goes to creditors every month. For most perople, calculating their DTI is an eye opening experience.

Once again, the brains at Bankrate have created an easy to use calculator. Check it out and let me know if your DTI percentage was news to you.

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