While waiting for an approval from my bank for new house loan mortgage application, I have been informed that the bank has checked my loan history and status and they said that my debt-to-income ratio is slightly above their ratio number. But, since I am already being their customer for more than 10 years with good payment track record, it looks like that my loan mortgage will be approved.
What is debt-to-income ratio? If you are a financial people, you will understand this term. Debt-to-income ratio is a personal finance measure that compares the amount of money that you earn to the amount of money that you owe to your creditors. This number is arisen when they plan to finance their new house, new car, or others. Any financial institutions or banks usually calculate it to determine your mortgage affordability.
Calculating your debt-to-income ratio is easy, open up an excel spreadsheet, put and sum up all of your bank or financial institution debts in one column, then put and sum up all of your income in other column, and divide the sum of your debt to the sum of your income. That’s it. That is your debt-to-income ratio. If you are still confused to run it using excel you can download this simple debt-to-income ratio calculator to help you find out your ratio. Replace item name in the template with your income and loan item.
Inside this tool, there is a ratio classification which I quoted from Gerri Detweiler, author of The Ultimate Credit Handbook. And there are some other classification from other experts that probably more suitable for you. There are many factors that affect the ratio, because it will depend on other expenses. For example, family with children will have different expenses compare with single people. Your living neighborhood also will affect your monthly expenses. So, be wise with your expenses, and read many references in internet if you have problem on managing your monthly expenses.
This tool will be more suitable if you plan to apply for a loan mortgage and you want to calculate whether your ratio is below your bank requirement where maximum ratio of 36% or 37% is the most common parameter used by banks to give you loan.
Debt to Income Ratio Calculator (Excel 97/2003) (33.5 KiB, 2,816 hits)
Debt to Income Ratio Calculator (Excel 2007/2010) (12.5 KiB, 5,309 hits)