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How does the 'debt to income' percentage get calculated ?

This criteria is mentioned in my detailed 'refinance request'. I don't know what it means, or how it is calculated. Can anybody help please ?
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April 27 2009 - Sarasota
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Answers (3)

The debt also includes monthly child support and/or alimony (if applicable) and the monthly taxes and insurances for the house, along with the other items that Tammy mentioned. Add all these monthly expenses and divide by your monthly income to calculate your "bottom debt to income ratio" Banks typically like less than a 45% ratio, although with other compensating factors (i.e. cash reserves, good credit, etc) this ratio may be able to stretch a bit higher.
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April 27 2009
There are two ratios: front end and back end.

Front end: your mortgage payment (including taxes, insurance, and mortgage insurance) as a percentage of your gross income.  Example: mortgage payment is $1000/mo, gross income is $3000/mo.  Ratio is 33%.

Back end: mortgage payment, credit card bills, home equity line, car payments, student loans, anything and everything you carry a balance on, added together, as a percentage of gross income.  Example: $1000 mortgage payment, $300 car payment, $200 home line of credit, $500 in credit card bills.  Total: $2000.  Gross income $3000/mo.  Ratio is 67%.

BTW, you want these ratios as low as possible for a traditional refinance, and as high as possible for a mortgage modification.  Just FYI.
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April 27 2009
It's your total payments for credit cards, loans, student loans, and the mortgage payment divided by your gross monthly income.
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April 27 2009
 
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