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Buying a Home? Pay Attention to Your Debt-to-Income Ratio

When you’re buying a home with a mortgage, one of the most important things that your loan officer will look at is your debt-to-income ratio.

This is the amount of debt you have, which can include car payments, student loans, child support, and what you owe on your credit cards, compared to how much you earn. Utility bills and how much you pay in rent are generally not included.

This helps your loan officer to determine how large of a loan you may be eligible to receive.

“What we look at is all the debt that is in your actual credit report and we divide that by your monthly income,” said Melyssa Caban, a New American Funding branch manager based in Kissimmee, Fla. “We’re going to see that after your debt is paid off, can you afford this home?”

If you have less debt, you may be able to qualify for a larger mortgage. That’s because your income won’t be eaten up by paying off other debts.  

Melyssa Caban NMLS # 737510

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Author

Editorial Director, New American Funding

Clare Trapasso is the editorial director at New American Funding. She was previously the Executive News Editor for Realtor.com and a reporter for a Financial Times publication, the New York Daily News, and the Associated Press.