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Calculate Debt to Income Ratio
Debt-to-Income Ratio: This measures how much debt you have compared to your income. A lower ratio typically indicates healthier debt as it suggests you’re not overly reliant on borrowing.
- 36% or Less: This is often considered an ideal DTI. It indicates that you’re not spending too much of your income on debt and can handle your current debt load comfortably. Most lenders prefer borrowers with a DTI in this range.
- 37% to 42%: This is acceptable but approaching the higher end. Lenders might still offer loans but with stricter terms or higher interest rates. It’s a sign that you should avoid taking on additional debt and perhaps focus on paying down existing debts.
- 43%: This is the highest ratio a borrower can have and still get a Qualified Mortgage, a type of loan that’s easier to obtain and has more flexible terms. Above this, you are considered to be carrying too much debt relative to your income, and it might be challenging to secure a loan.
- Above 43%: This is typically considered too high and indicates that you may be over-leveraged. It might be difficult to obtain additional loans and could lead to financial stress. It’s advisable to work on lowering your DTI if it’s in this range.