Debt-to income ratio unveils your financial health. It is a numerical measure of your creditworthiness. A good debt income ratio essentially helps you to qualify for a mortgage loan as per terms that are favorable for you. It also determines how much you can pay each month without straining yourself financially.
Types of debt-to income ratio
Debt-to income ratio is of 2 types-
Front ratio-
The front ratio reveals the payments you make for housing expenses. It includes PITI expenses that include payments you make for principal amount, rate of interest, insurance as well as taxes.
Back ratio-
The back ratio indicates the payments you make for other debts that you have. It includes payments for child support, alimony, student loans, credit cards etc. The housing expenses are also included in the back ratio.
How can you associate your debt income with your financial health?
Your financial health is determined by your debt income ratio. If you have a debt income ratio of 28/36, it is regarded as good. Debt-to income ratio is obtained by dividing the total debt obligations by total income. Having a higher debt-to income ratio or DTI limits your eligibility of availing a mortgage loan at favorable terms. There is slight relaxation offered by FHA or Federal Housing Administration. A debt-to income ratio of 29/41 is permissible.
A higher debt income ratio is a clear indication that your credibility is questionable. And lenders usually shy away from giving you a loan under such circumstances. Just as your credit score is an important indicator of your financial well being so is your debt-to income ratio.
Types of debt-to income ratio
Debt-to income ratio is of 2 types-
Front ratio-
The front ratio reveals the payments you make for housing expenses. It includes PITI expenses that include payments you make for principal amount, rate of interest, insurance as well as taxes.
Back ratio-
The back ratio indicates the payments you make for other debts that you have. It includes payments for child support, alimony, student loans, credit cards etc. The housing expenses are also included in the back ratio.
How can you associate your debt income with your financial health?
Your financial health is determined by your debt income ratio. If you have a debt income ratio of 28/36, it is regarded as good. Debt-to income ratio is obtained by dividing the total debt obligations by total income. Having a higher debt-to income ratio or DTI limits your eligibility of availing a mortgage loan at favorable terms. There is slight relaxation offered by FHA or Federal Housing Administration. A debt-to income ratio of 29/41 is permissible.
A higher debt income ratio is a clear indication that your credibility is questionable. And lenders usually shy away from giving you a loan under such circumstances. Just as your credit score is an important indicator of your financial well being so is your debt-to income ratio.
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