John has a recurring monthly debt of $10000, while Alan has a recurring monthly debt of $5000. Suppose John has a gross monthly income of $20000 while Alan has a gross monthly income of $15000. It is assumed that the highest debt to income ratio is 43%, beyond which the borrower has a diminishing ability to return the loan. Generally, Debt to Income Ratios is used by lenders to determine whether the borrower will be able to repay the loan. Debt to Income Ratio = Overall Recurring Monthly Debt for Jim/Gross Monthly Income.Using the Debt to Income Ratio Formula, We get – Overall Recurring Monthly Debt for Jim = $4500.He also has other smaller debt payments, which amount to $500 per month. Jim has also taken a car loan with a monthly payment of $1000. Jim has a housing mortgage payment of $3000 per month. You can download this Debt to Income Ratio Template here – Debt to Income Ratio Template Let’s take an example for a person, Jim, whose Gross Monthly Income is $10000.
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