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Debt to Income Ratio and Loan Tips

What is a debt-to-income ratio?

Your debt to income ratio compares the amount of your debt (minus your mortgage payment) to your gross income. In most cases, the ratio is calculated on a monthly basis. For example, if your monthly gross income is $2,500 and you pay $500 per month in debt payment on loans and credit cards, your debt-to-income ratio is 20 percent ($500 divided by $2,500 =.20).

Debt-to-income ratio compares debt liabilities to income.

Debt-to Income Ratio = Total Debt Payments / Monthly Gross Income

How do I calculate my debt-to-income ratio?

The first step in calculating your debt-to-income ratio is figuring your gross monthly income, which is the amount you earn prior to all deductions. If your’e paid every other week, multiply your take-home pay by 26, then divide by 12. This is your monthly take-home pay. If your income is inconsistent, estimate your monthly net pay by dividing the previous years’ annual net pay by 12.

Article was written by Sandy Sarconi.  He is a respected free-lance writer as wells as an account executive with Irwin Home Equity. You can also find more second mortgage related articles at BD Nationwide for Mortgage Refinance or check out


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