Myrtle Beach South Strand Real Estate - Debt to Income Ratio
Debt To Income Ratio
If some one has a debt to income ratio equal to or below 28% then he or she may be considered to be financially healthy. If its between 28% and 36% then at this point he is financially healthy but at the same time he or she needs to keep a check on his debt. And anything above 36% then the person he or she financially unhealthy, he needs to visit a doctor fast!
Calculating debt income ratio
One is by including only and all your housing expenses which include home insurance, mortgage, taxes and other home related expenses. Once you have calculated total housing expenses divide it with your gross monthly income.
For example:
Another way to calculate Debt Income ratio is by including all your debts like mortgage, car loans, insurance premium, credit cards payments etc. and them divide it with your monthly gross income.For example:
And make sure that when you are calculating your total monthly debt you do not include monthly expenses on entertainment, grocery, food and other utilities.
Now many people may ask why Monthly Gross Income instead of Net Income, ultimately that’s what I take home. But one of the prime reasons lenders consider gross Income and not net income is because at the end of the year when you file taxes you may get some deductions and returns so they believe that if Debt Income Ratio is calculated with gross income it will give them more realistic results.But lenders do consider this for business owners as they calculate there debt to income ratio on adjusted gross income.Items included in Total Monthly Debt
Items included in Total Monthly Gross Income
How to Improve Debt Income
Figure out areas where you can cut some expenses:Get out of credit card debts:Emergency Fund:Go to a Financial Doctor:
If your ratio is still not improving then don’t hesitate is seeing a financial doctor, I mean have some kind of good financial counseling that will help you manage your debts in a better way Slowly but steadily try and build an emergency fund so that you can come out of some kind of financial problems in future or have a nice vacation without falling back in credit cards debt. Experts say try and start doubling your credit cards payments so that you start improving your debt to income ratio. If credit cards are not your problems then pay for any other debts as long as there are no prepayment penalties. Once you have done your budget and worked on sot cutting, put the money that you have saved after that to pay off the debt with highest interest rate like credit cards.
Monthly Net (take-home) Salary
Annual Bonus and Overtime, divided by 12
Other Annual Income, divided by 12Monthly Mortgage payments or Rent
Monthly Home Equity Line of Credit or Loan
Monthly Car Payment
Monthly Credit Cards payments
Monthly Student Loan payments
Monthly Child Support payments
Other Monthly Loan amount
If you earn $2500 per month and have a car expense of $250, taxes of $250, insurance premium $200, mortgage payments of $500 and credit cards payment of $100 then your debt income ratio is 52%. Which also means that you are financially very unhealthy and need to see some financial doctor (Get some financial counseling) immediately.
If you earn $2500 per month and have a mortgage expense of $500, taxes of $250 and insurance premium of $200 then your debt income ratio is 38% is very easy and can be done on your kitchen table. There are two ways you can calculate this ratio depending on the debts you are including in the calculations.