When considering your finances there is a good chance that you have come across the term debt-to-income ratio. The debt-to-income ratio is used as a way to measure a person’s finances. It compares the amount of debt payments a person has to the amount of income they have coming in each month.
The gross income is the pay that a person receives before taxes and other deductions come out of a check. The debt-to-income ratio is a percentage of the monthly income that you have to use to pay on your debts each month.
There are several things that you can take away from knowing your debt-to-credit ratio. First, the highest ratio a borrower can have and still qualify for a loan such as a mortgage is 43 percent. However, most lenders look for a debt-to-income ratio of less than 36 percent.
The lower the debt-to-income ratio is, the better the balance is between your income and debt. High debt-to-income ratios signal that a person has more debt than they can truly afford, which can make it more difficult to get a loan.