When you are in the market for a mortgage loan having your finances in order is crucial. One of the areas that mortgage lenders have to pay attention to is the amount of debt a borrower has. Lenders look at the debt-to-income ratio (DTI) which compares ones total debt expenses to gross income. The lower the DTI, the better chances you will have at qualifying for a mortgage. Typically you want to keep your DTI under 40% to be considered in good financial health. By keeping your debt low you are more likely to pay off your mortgage even if you were to suffer a setback.
To calculate your DTI you first need to add up all your monthly debts including credit cards, car payments, student loans, as well as your housing payment whether it is rent or your mortgage payment (include taxes, insurance and any other fees or dues). Once you have your total monthly debt calculated, divide that number by your monthly gross income. Multiple that number by 100 to get your DTI as a percentage.