If you ask someone what their debt-to-income ratio is, they will most likely not be able to give you an answer. Sadly, this obscure credit item is actually very important in determining whether or not you can get the loan that you want. So, what is a debt-to-income ratio, or DTI? Put simply, a DTI is the percentage amount of your gross income that goes towards paying off your debts. DTI is always expressed in the form of x/y or front DTI/Second DTI. There are two main types of DTI that you should be aware of.

The first kind of DTI is the front ratio DTI, which indicates the percentage of your income that is used towards housing costs, including mortgage, interest, insurance on the mortgage, hazard insurance, property taxes and more.
The second kind of DTI is the back ratio DTI, which is the percentage of your income that goes to recurring debt payments, including credit card payments, car loans, student loans, child support, alimony and any legal judgments that may be against you.

In the United States, there are varying limits on your debt-to-income ratio that determine if you can get a loan. For example, conventional financing limits for loans are typically 28/36 for your debt-to-income ratio, which means 28 percent for your front ratio and 36 percent for your back ratio. If you spend more than 28 percent of your income on your mortgage and home prices, and 36 percent on your revolving credit, then you will probably not get the credit that you want. However, in Virginia, you can have a ratio of 41/41, which is much higher due to relaxed lending laws in that state.

The year of 2008 was the year the subprime housing market collapsed, and to see why, you only need to look at the debt-to-income ratio that companies allowed to give out mortgages. It was an astonishing 55/55 in many cases. This meant that over half of what you made could go to debt and that would not be a problem to get a loan. Obviously, many people could not afford this and they lost their homes as a result.

If you have a high debt-to-income ratio, then it may be time to contact Turning Point Debt Settlement, we will work with you to try and lower your debt-to-income ratio with honest methods and straightforward results. Over the course of one to three years, we will work with fixed fee payment solutions to help repair your credit and lower your debt-to-income ratio.

This entry was posted on Friday, February 6th, 2009 at 8:36 am and is filed under Blog. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.