Having many monthly debt obligations not only prevents you from living on a comfortable budget, but it also prevents you from accomplishing other financial goals. Still, it’s not just the amount of debt you have that matters – it is how much debt you have relative to your income. If you’re considering buying a new house it is important that you care about your debt to income ratio for a mortgage.

In simple terms, debt to income ratio (DTI) is a simple calculation that compares your monthly debt obligations to your monthly income. To determine your debt to income ratio, you should add all your debt payments and divide the sum by your total gross monthly income, then multiply the resulting figure by 100.

For example, if the sum of all your debt is $2,000 per month, and your monthly gross income (i.e. salary before tax) is $5,000, then your DTI is 40%.

Back to the important question – why should you care about your debt to income ratio for mortgage? The following are the main reasons why:

DTI Determines Whether You’ll Qualify for Mortgage

Before taking on a new mortgage loan, it is important to know whether you can afford new debt. The best way to gauge your capability for taking on new debt is by determining your debt to income ratio.

Besides using your credit score, mortgage lenders also rely on debt to income ratio to establish whether you will be able to afford your loan. They will look at all of your monthly debt obligations, including mortgage payments, property taxes, utilities, and all other consumer debt.

The less consumer debt you have (credit cards, car loans, student loans, etc.) the more you will qualify for a mortgage.

Interested?

Do you want to know how much of a mortgage you qualify for? It is time for you to look for a mortgage broker in Edmonton. I am dedicated to helping borrowers address their concerns about mortgages. I can help you make smart decisions when investing and making long-term financial plans.

Contact me today with any questions.