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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 http://www.bdnationwidemortgage.com/second-mortgage-california.html

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