Matt already explained the calculation below, but I would also add that any obligations that do not show up on your credit report, but indeed are a monthly obligation can be added in. For example, child support payments, alimony, new debt that has not shown up on your credit report yet.
This is comprised of all monthly debts showing on your credit report as well as the Principal, interest, taxes, and insurance (and HOA dues if applicable) and then measured as a % of your income.
For example if you make $4,000 a month and your total payments would be $2,000 then your DTI would be 50%
The importance of this depends on what type of loan programs you are looking at as well as the rest of the credit package. (Assets, FICO score, Loan to value ect)
If you are more specific about the loan program you are looking at I can give you a more specific answer.
In simple terms it is your monthly debts (credit cards, student loans, car loans, projected mortgage payments) divided by your gross (before taxes are taken out) monthly income.
Different loan programs will allow different debt ratios, but for simplicity 45% is a general upper limit.
For more detail on what counts or doesn't count as debt, and what counts or doesn't count as income, just ask your favorite mortgage lender.
Do you mean Debt to Income ratio?? That's usually referred to as DTI. What that means is how the lender will compare your income to your debt. Then, they have a formula (depending on the mortgage program you're shooting for) that tells them, based on that information, how much you should be spending each month on a housing payment, therefore, telling them how much they should lend you.
I hope this helps.
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