A lender calculation that compares a borrower's total debt (principal, interest, property taxes, and insurance, plus other monthly debt payments) to gross monthly income.
(i.e., debt ratio) A calculation used by the lender to determine if the amount of income less debt is sufficient to afford the monthly payment. It is calculated by taking the monthly mortgage payment (PITI) and dividing it by the sum of the gross monthly income minus the total monthly debt payments of the applicant. The maximum ratio varies from 32% to 40%, depending on the loan and program applied for. In other words, no more than 40% of the applicant's income less debt should be set aside for the monthly mortgage payment.
The ratio of monthly housing costs (PITI) plus long-term debt service to total monthly income. (See front-end ratio, PITI)
Your total debt-to-income ratio - That is, your total monthly obligations (debt), divided by your gross monthly income. Your monthly obligations include such items as your mortgage payment, property taxes, insurance premiums, installment loans, and revolving debt (credit cards). This ratio is used to determine your capacity to repay the mortgage and all other debts. Your debt-to-income ratio is a crucial calculation in determining the loan amount for which you can qualify. In conjunction with your expenses-to-income ratio, it represents your financial capacity to assume and repay debt.
A comparison of a borrower's monthly expenses to their gross monthly income used to assess their ability to carry a mortgage or other loan.
Lender calculations by which debt (principal, interest, property taxes and insurance + other monthly bills) is compared with gross monthly income.