What Is Debt to Income Ratio?

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What Is Debt to Income Ratio?

Staff Writer · Feb 25, 2011

Calculating your debt to income ratio can help you understand how much you can reasonably afford when you’re looking for an apartment or are considering an apartment upgrade or downgrade. When applying for an apartment or when taking out a loan, this ratio may also play a part in your eligibility, so take the time to calculate this ratio for yourself.

Calculate Your Debt to Income Ratio

The most basic way to calculate your debt to income ratio is to add up all of your monthly expenses and divide them by your monthly income. Consider rent, utilities, money spent on food, car or transportation costs and anything else on which you spend money on a regular basis in order to calculate your monthly expenses. If you can’t think of the smaller expenses off-hand, concentrate on your basic apartment expenses: rent, utilities, insurance, etc. The smaller the ratio, the more comfortable your lifestyle will be–because you’ll have excess money and won’t be living paycheck to paycheck–and the more likely you are to be accepted as a tenant and a borrower.

Variables in Ratio

The debt to income ratio that you calculate may differ slightly from the ratio calculated by a potential landlord or lender. This is because they may take a variable number into account. For example, if you don’t know precisely how much you spend on food each month or the amount varies, you may choose to say you spend $100, while someone else may err on the safe side and say $150. Try calculating your ratio with several variable amounts to prepare yourself for ratios that other people may come up with.

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