September 20th, 2017

What is Debt-to-Income Ratio?

If you’re looking to borrow a Home Equity Loan or Line of Credit, the term debt-to-income ratio is likely to come up. Debt-to-income ratio is the amount of a borrower’s monthly outstanding debt payments as a percentage of their monthly gross income.

This is a major consideration when a lender is evaluating a credit application. But there can be differences in how this is calculated from bank-to-bank, as different lenders have different criteria for what counts as debt and what counts as income.

For example, at Ephrata National Bank we include other monthly housing expenses in addition to your monthly debt payments. Examples of those expenses include property tax payments, private mortgage insurance premiums, and home insurance premiums.

Most lenders like to see a debt-to-income ratio of 45% or less in order to make a loan. This can vary from bank-to-bank but is generally a good rule of thumb. We recommend you discuss your debt-to-income ratio with your lender when filling out your application.

If you have more questions, visit our HomeLine page or if you’d like to speak with someone, give us a call at (717) 733-4181.