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Calculating your debt to income ratio – Why is this important?

Posted On : Jan-16-2012 | seen (1711) times | Article Word Count : 418 |

It is very important to check your credit score and debt to income ratio before you take out a home mortgage loan. Use a calculator so that you can easily determine your ratio and work on it for getting the best loan in the market.

If you’re in the market to take out a home mortgage loan, you will know the importance of your credit score and the debt to income ratio. Both the figures have utmost importance in getting you a home loan at an affordable rate. The debt to income ratio is usually checked by the lenders and you can also lower the ratio so that you can easily take out a home loan at a covetable cost. Are you aware of the importance of the DTI ratio? If answered no, read on the concerns of this article.

How do you calculate your DTI ratio?

The debt to income ratio is nothing but the ratio between what you earn in a month and what portion of your income that goes towards repaying your debt obligations. There are DTI ratio calculators that you can download and used when you feel that you can’t calculate this ratio on your own. Before you go to a mortgage lender, you should make a list of all the debts that you owe, the total monthly income that you earn from your day job as well as from all the other financial assets like investment too. Don’t forget to include any source of income as this may end up in a wrong calculation.

How can you lower the DTI ratio and impress the lenders?

As the lenders check your DTI ratio before giving you a loan amount, you must always try to maintain the exact DTI ratio that impresses them. The best way to lower the DTI ratio is by repaying your unsecured debt obligations. As you may have had a huge amount of unsecured debt obligations, you should start repaying them one by one so that you can easily lower the ratio. If you have a very high DTI ratio as up to 80%, the lenders will deem you to be a risky borrower who may anytime default on the loans. Thereby they will increase the interest rate on the loan and you may find it difficult to repay the loan on time.

Therefore, when you're not keen on getting high interest rates on the home mortgage loan, you should try your best to lower the debt to income ratio so as to be able to grab the best loan at the most affordable rate. Manage your payments so that you're able to repay the loan on time and save your home from a forced foreclosure.

Article Source : your debt to income ratio – Why is this important?_134069.aspx

Author Resource :
Sam is a deliberate writer for Her writings include home loans, auto loans, personal loans, second home mortgage etc. She is a financial writer by profession and has specialization in dealing with financial problems and its solutions

Keywords : debt to income ratio,

Category : Finance : Debt Consolidation

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