When you apply for a loan, the lender will take a close look at your income. That only makes sense, since a borrower with a $20,000 annual income would have a harder time paying back a $10,000 loan than a borrower who makes $200,000 per year.
Use the calculator below to see how much you need to earning to acquire a mortgage loan of you own.
The gross income amount is not the only factor lenders use, however. Banks, credit unions, car dealers and other lenders also look at the amount of debt you already have. More specifically, lenders want to know your debt to income ratio. That ratio looks at the amount you owe compared to your annual income. If you are applying for a loan, you will want to take a look at that important number before the lender does.
The good news is that calculating your debt to income ratio is not difficult. In fact, getting the number you need should only take a few minutes. Just use the steps outlined below.
Gather your loan paperwork and credit card statements. Add up the total amount you pay toward debt each month. For instance, if you pay $100 toward your credit card and make a $400 car payment, your total monthly debt payment would be $500.
Calculate your monthly take-home pay. This is the amount you receive in your paycheck. If you are paid twice a month, you can simply multiply your regular paycheck by two. Every two weeks, you will need to multiply your paycheck by 26 to get an annual figure then divide by 12.
Divide the amount of your monthly debt payment by the amount of your monthly take-home pay. If you spend $500 on debt payments each month and bring home $2,000, your debt to income ratio would be $500/$2,000, or .25.
If you have a mortgage, you do not need to include the monthly mortgage payment when calculating your debt to income ratio. The debt to income ratio includes non-mortgage debt only, including credit cards, car payments and the like. It is important to monitor your debt to income ratio carefully, even if you are not applying for a loan. Letting your debt payments rise while your income stays steady could cause financial problems in the future.