Christian Debt Recovery

Calculating Income To Debt Ratios

February 23rd, 2008 |

Author: Gavin

How to Calculate Your Debt Ratio Before You Apply For Loan Modification

There is $75 billion in a federal loan modification program available to homeowners who qualify. Those facing possible foreclosure caused by a downturn in the economy, job loss, and financial hardship might be eligible to lower their monthly mortgage payments. One of the eligibility requirements imposed by your lender under the federal loan program involves your debt ratio. To determine whether your debt ratio is within the qualification guidelines, read this article further to learn how to calculate yours.

Lenders make their decisions based on one or two different types of debt ratios. One calculates your mortgage expenses compared to your monthly income and one calculates your total monthly expenses compared to your total monthly income. Your debt ratio tells the bank about your ability to afford your payments and what percentage of your total income is used for your housing expenses. There are different ranges of ratios used under different loan modification programs that determine your eligibility for loan modification.

A sample debt ratio calculation is depicted below:

* Gross monthly income = $4000

* House Payment (including taxes, insurance, and HOA dues) = $1500

* Housing debt ratio = 1500 / 4000 = 37.5%

The higher your debt ratio, the more evident that you are encountering a financial hardship, but a ratio that is too high will increase your risk of default. In that case, say if your total debts and expenses exceed 52% of your total monthly income, you might be required to participate in credit counseling. If the ratio is beneath the range required under the federal loan modification program (generally
The general ratio range to qualify under many of the loan modification programs is 38-45%, but it does vary by lender. You’ll be better prepared to understand your chances of qualifying if you calculate your own ratio and make adjustments in debt or income to put in the appropriate range before applying for loan modification.
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For detailed facts and essential tips about how you can get approved for a Loan Modification, visit this simple, easy to understand loan modification guide and resource: Home Loan Modifications