Debt-Ratio Calculator
The maximum amount of money that a mortgage lender will allow you to borrow depends on two tests. The first test, which could be called the allowable monthly housing cost test, ensures that your monthly mortgage payments will not exceed 28% of your gross annual income. The second test, which could be called the allowable total monthly debt payment test, ensures that your total monthly payments for all debt including your mortgage payments do not exceed 36%. These ratios are good things because they help people to avoid overextending themselves. For example, if you bring home $2,000 per month and had to make a $1,500 mortgage payment each month, it is virtually guaranteed that you would either starve to death or default on your loan. The first test tries to prevent this from happening. In the same way, if you have a number of outstanding loans for cars, boats, furniture, etc. and tried to load another large loan on top of the pile, then it is also likely that you would eventually default. Test 2 guards against this problem.
Looking for more personalized rates? Compare rate quotes from lenders and brokers, then return to our Debt-Ratio Calculator.
More Information
Use this calculator to determine your debt to income ratio. Generally speaking, a debt ratio greater than or equal to 40% indicates you are not a good risk for lending money to.
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