Debt to Income Ratio (DTI Ratio)
When applying for a loan there are many things you will be assessed for. One of the most important thing is your Debt to Income Ratio. As the name implies, this ratio is your doubt against your income. This ratio allows lenders to gauge whether a borrower will be reliable when it comes to repayment of the mortgage loan, so it the lower your debt to income ratio the more attractive you are to lenders and financial institutions. This ratio is generated by taking into account the debts of a borrower against the income they make (excluding liabilities of taxes) and the highest DTI a borrower can have is 43% in most cases.
What information do you need to calculate the DTI Ratio?
Calculating the debt to income ratio is very simple and only requires two pieces of information:
- The annual income (excluding taxes)
- The debts of the borrower by months
Putting these two together will provide you with your DTI ratio.
What is a Debt to Income Calculator?
Many lenders and financial institutions provide free DTI calculators on their website. These are calculators that will present you with your ratio once you enter your annual income and monthly debts into the online tool.
The benefit of using this tool applies both, to the borrower and the lender. The borrower can use the tool to learn what their DTI ratio is and thusly how attractive they are for lenders and the lender can assess the ability of a borrower to repay their mortgage in the agreed terms.