Video transcript: Debt-to-income ratio

On screen:

What's Debt-to-income ratio?

On screen:

Michael, Underwriter

Michael:

Debt-to-income ratio is a combination of all your debts. So your installment loans, such as a car payment, or maybe a boat payment. Plus a combination of all your revolving debts, which would be a credit card, and you're gonna divide that by your gross income that you receive each month, and that's gonna give us a percentage. And, that's going to be your debt-to-income ratio. That ensures that there's a low enough risk to where it works for both the bank and yourself. That way you're not spending too much money on your home and you're not taking away from your other monthly expenses.

On screen:

George, Certified Public Accountant

George:

If somebody comes to me after they have been approved for a home loan and wants to add additional credit, buy a car, buy some furniture, before the home closes, I always advise them not to do that. They've been approved on a debt-to-income ratio that they have and if they change that, when they go to close, they may not qualify anymore, and they may lose the house that they want.

On screen:

Debt-to-income ratio

• Your debts (including mortgage payment) divided by gross income
• Shows you have the finances to afford a home
• Don't change your ratio during the process

Learn more about finding and buying a home.