 |
 |
|||||||||||||||||||||||||||||
Debt to Income RatioDo you know what a debt to income ratio is? Do you know how it effects you?The debt to income ratio (DTI) is essentially your Gross income divided by your expenses (rent, mortgage including taxes and insurance, equity loans, monthly payments including credit card and car payment, alimony, etc.) Traditionally, most lenders will calculate your DTI based on your Gross income. While calculating your DTI against your Gross income presents a better picture, it is not realistic. We've calculated your DTI based on your Net income, the money you actually have to spend every month. What does this all mean?When you're applying for loans, credit cards, mortgages, etc. lenders will look at your DTI as part of the overall assessment of your credit worthiness. Your DTI tells a lot about your financial health. Lower DTI generally means your situation is better since you'll have less debt and more money for other things.Historically, lenders prefer a 36% DTI (and lower), with no more the 28% of that debt dedicated to your mortgage. 37-40% is considered the upper limit, although lenders may be willing to issue loans to those within this upper limit it isn't always wise to accept these loans. Those in the 41-49% range, must be extra cautious as serious financial trouble is looming. Some credit card companies are more than willing to issue credit to those with a DTI up to 50%, but again accepting these debts will only lead to imminent trouble. Keeping your DTI closer to 0% (zero indicating a debt-free life) is perhaps the most ideal situation but since everyone has bills and most of us have recurring monthly debt, keeping a lower DTI is always better than high. If your DTI is high there are really only two ways to reduce it. First you can find another source of income, thusly increasing your monthly Gross, or you need to reduce your debt by cutting some of your month spending. How does it help?The Money Case is simple and easy to use. Our free software will ask you a series of general questions about your income and expenses. The Money Case then generates a budget for you based upon guidelines and recommendations made by financial experts from well-established financial institutions and the Federal Government's established guidelines for your income range. The Money Case will calculate your debt-to-income ratio, suggest a budget and show you in which categories you are overspending. You are able to track your spending over time to see how you can improve your spending habits and increase your savings over time. Our budget calculator and money saving software are completely free. |
|
||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||
