The debt to income ratio (DTI) measures the amount of debt someone has and backs it against their income. Calculating the debt to income ratio may be necessary to open certain lines of credit, apply for loans, open a business with business loans, or for mortgages when wanting to purchase a home. It is calculated by dividing your gross monthly income and the total recurring monthly debt.
Many lenders will use this number to see if you are capable of repaying the money you borrow and if you are able to take on additional debt – no matter how large or small. For many big purchases, such as buying a car, it is a standard requirement.
To calculate this number, you will want to first add the entirety of any recurring monthly debt. This could include mortgage payments, car loans, student loans, credit card payments, child support, etc. Then, you will calculate your gross monthly income, which is what you earn before taxes. Finally, you will divide the recurring monthly debt by the gross monthly income. Since the number will be a decimal, multiply by 100 to show the number as a percentage instead.
Not all lenders will require this number. It all depends on who you are borrowing from and what you are borrowing for. However, when lending with Monroe Funding Corp., commercial mortgage loans FL, we look at the quality and condition of the property, not personal qualifications. This makes it much easier to bid on houses, especially if you are looking to make an investment with flipping properties.