What is the debt to income ratio?
The debt ratio to income is a simple comparison of income generated in the specified period to the amount of debt, which must be appreciated in the same period. The debt to income ratio is usually calculated after one month, which provides a picture of what needs to be obtained to pay monthly obligations. Debt ratios for income are useful in determining how much more debt can be expected without creating financial problems.
The understanding of the relationship between debt and income is useful in several different ways. For people trying to develop a functional monthly budget, it is important to identify all current obligations and what type of monthly payment is necessary to maintain debts in good condition with the creditors. For creditors, it allows to obtain the actual image of the debt ratio to income to evaluate the ability of the debtor to take over further debt.
In fact, there are two different forms of debt ratio to income. The first is known as the front end or high debt to the ratio. This ratio involves comparing the monthly gameB -income with monthly housing costs. Although the overall image of monthly debt obligations is not, this approach shows whether the debtor can continue to afford housing if another loan obligation is added to the mix.
Back End or Low Debt to Income focuses on adding all fixed monthly spending to come up with total monthly obligations and compare the total number of monthly gross income. Together with the basic housing obligations, debts such as monthly support of the child, health insurance payments, credit card payments and maintenance payments are also taken into account. This approach to determining the actual financial status of the debtor provides a clearer idea of the overall current debt and provides a better idea of how much risk applies to the extension of the loan.
it is important to note that the calculation of the debt ratio to the income will always include anyIf obligations that appear on the credit message. This means that existing loans and other fixed monthly expenses will be present. However, variable expenses are unlikely to be stated on the credit report and must therefore be detected by the debtor.
creditors also tend to determine the percentage scope for the relationship between debt and income. If the debt ratio calculator suggests that the anterior end ratio is not more than 35% of gross income and the ratio of the reverse end is not more than half of the gross income, the debtor is usually considered a good risk. However, if the debt ratio to income is more than 50%, creditors may reduce the loan application.