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glossary of terms |
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What is meant by the term "debt ratio"? |
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This is simply the sum of all you owe on a monthly basis, divided by the sum of all your income. For example, if your monthly net income totals $4000, and your monthly debt for credit cards, loan payments and other obligations totals $1000, you would have a debt ratio of 25%.
Most conventional loans require a debt ratio of about 40% or lower. Generally, government loans from FHA or VA allow for a slightly higher debt ratio, although the amounts these agencies lend is lower than conventional lenders. |
