What is Debt-to-Income Ratio?

If you’re buying a farm or house for sale in Northern Florida, you’ll hear the term debt-to-income ratio – but what is it, and why does it matter?

Debt-to-income ratio, or DTI, is an equation that compares how much money you owe (including credit card companies, auto loan companies and others) to how much money you make. It affects whether a lender will approve you for a mortgage.

How to Calculate Your DTI

Use your minimum monthly payments to calculate your DTI. If you’re paying $200 on one credit card, $100 on another and $500 in car payments, your monthly debt is $800.

Use your gross income each month to finish the calculation. Let’s say you make $5,000 in gross income. Divide that $800 debt by $5,000 to figure out your ratio. In this case, it’s 0.16, which translates to 16 percent.

Your monthly mortgage payment will get factored into the debt, too. If you’re going to have a monthly mortgage payment of $1,000, your monthly debt becomes $1,800 – and your DTI changes to 0.36, or 36 percent.

Are You Buying a Home for Sale in Lake City?

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What is Debt-to-Income Ratio?