What Is The Debt To Income Ratio In Home Loans And Why Should You Care?

If everything is fine then the Debt-To-Income ratio could be your weak point. This factor just like credit score matters a lot while looking for a home loan.

The debt-To-Income ratio as its name suggests is some percentage of your current income & debt. Don’t worry we make you clear everything about this factor.

The debt-to-income ratio is concluded by calculating your all monthly debts and dividing them by your monthly income. This factor helps banks & financial institutions to estimate the value of debt that you can comfortably repay. The one big difference between Credit Score and DTI is, in credit score you need a higher number and a lower number in DTI. 

You just need the basic maths calculation to calculate your DTI ratio. As we mentioned in the upper paragraph that you just need to sum up your monthly debts and divide the total amount with your monthly income.

• Car Loan EMI – Rs. 8500
• Two Wheeler Loan – Rs. 2500
• Credit Card Bill – Rs.12000
• Your total monthly debt is – 8500 + 2500 + 12000 = Rs.23000
• Suppose your monthly salary is Rs. 1, 00, 000
• Your debt to income ratio is: 23,000 / 1,00,000* 100 = 23%. 

So, now before applying for the loan in the bank you can check your DTI ratio and prepare yourself for any obligation that occurs. Now you have learned how to calculate the Debt-To-Income ratio but, you need to find out where you exist in the DTI ratio.

If your Debt-to-income ratio is 35 or lower, then you are at a better stage and an eligible applicant for the banks. It means, after paying your monthly debts & bills you can handle more debts and able to repay without feeling any pressure or burden. 

If you come under this range then still there are few chances of getting a loan easily, but we recommend you to work on this score for improvement. In most cases, banks are offering the best interest rate on low DTI, because it represents you are in a good position to deal with unexpected future expenses. 

Banks consider applicants with higher DTI (50%+) risky borrowers, thus hitting your chances of getting the loan.

So, now you understand everything about the Debt-To-Income ratio and its impact on your home buying dream. For more information, you can contact any financial advisor.