what formula do i use to get the debt ratio? and what does it mean when the words show up on a financial worksheet like this: Income/debt/Expense? :help

Your own debt to income ratio?

Figure out your monthly take home pay (minus deductions)

Then figure out all your monthly debt expenses

Divide your total monthly debt expenses by your total monthly income from all sources (minus deductions). This is your debt to income ratio.

I’m lost, are you talking about income/debt ratio of people your considering talking to in effort to purchase their home?

We put together data sheets for clients of prospects for direct mail and phone marketing that show debt to income ratio, as well as a host of other valuable data points such as (revolving credit, %LTV, Income, Children (?)).

If you’re talking about finding this type of information on one individual that would be difficult. However you can purchase lists of this data for marketing purposes.

Is this what you’re asking or did I miss the mark?

Regards,

thanks for giving me some clarity

LoriK,

All the lenders I have ever dealt with used gross income, not take home, in the calculations. The debt to income ratio equation is simply monthly fixed expenses divided by gross monthly income (before taxes and deductions).

Monthly fixed expenses include all debt, such as house payment or rent, COA/HOA fees, PMI, minimum payments on credit card and other revolving credit balances; car payments, alimony, child support, etc. Do not include grocery, telephone, and utility bills or any debt that will be paid off in the next few months. If your car loan will be paid off two or three months from now, it is not included in the equation.

Now that you know how the debt to income ratio is calculated, I am going to guess at what the “Income/debt/Expense” numbers are looking for on the financial worksheet you are looking at. It may help if we could also see the worksheet so we would have a better context for your question. Regardless, I will take a stab at it.

I am assuming that you are filling out a financial worksheet for a lender as part of your application for a mortgage loan. The lender will look at your debt to income ratio as a quick and dirty estimate of the percentage of your income that is available for a mortgage payment after all other continuing obligations are met.

You may see conventional loan debt limits referred to as the 28/36 qualifying ratio. Those numbers refer to two percentages that are used to examine two aspects of your debt load – your housing expense ratio and your total debt to income ratio.

The first number – 28% – indicates the maximum percentage of your monthly gross income that the lender allows for just your housing expense. This ratio is the total of your housing expenses divided by your gross monthly income. Only include payments for the mortgage loan principal and interest, private mortgage insurance, hazard insurance, property taxes, and homeowner’s association dues as your housing expenses.

The second number – 36% – refers to the maximum percentage of your monthly gross income that the lender allows for housing expenses plus recurring debt. Recurring debt includes the minimum monthly payment on your credit cards, child support, car loans, and any other recurring obligations that will not be paid off within a relatively short period of time (6-11 months). This second number is what is generally called the debt-to-income ratio (DTI).

Not all loans are the same. Conventional loan ratios used to be 28/36. FHA loan ratios were a little more generous, 29/41. VA loans allowed a maximum debt to income ratio of 41. These ratios are not hard and fast either. If you have a high net worth and lots of liquid assets, lenders may allow a DTI as high as 54. In our current mortgage environment, lenders may be tightening up their standards.

Now that you know that there are really two ratios, a housing expense ratio and a debt to income ratio, I am guessing that the “Income/Debt/Expense” entry on the worksheet is asking you for your Gross Monthly Income, your monthly Housing Expense, and the total of your housing expense plus all other Recurrring Debt Expense.

So, if you have a gross monthly income of $3650, a monthly housing expense of $1050, and $300 in other recurring debt, you would enter “3750/1350/1050” on the worksheet.

Just my guess. You would have to ask the individual who gave you the form to fill out for their specific instructions to be sure.