How to Calculate Your Debt to Income Ratio

You hear it all the time during a housing search: debt-to-income ratio. 

A bank won’t grant you a mortgage unless you fall within specific ratios, and you certainly won’t get passed an NYC co-op board if you’re wallowing in too much debt. So how do you figure out where you fall?

Take this simple formula to figure out what your current gross debt-to-income ratio is:

1) What is your gross annual salary? 

2) Divide that number by 12. (This will be your monthly gross income.) Remember this number.

3) What are you currently paying in monthly debt? (Credit cards, auto loans, student loans, mortgages, insurance, property taxes, and so on)

4) Take your current monthly debt payments (3) and divide that number by your current monthly income (2). This is your current debt-to-income ratio.

If you’re interested in seeing how that debt to income ratio changes after your home purchase, add your projected mortgage and maintenance payments to 3 above and continue on to step 4. This will be your projected debt-to-income ratio after your transaction.

Lenders will have thresholds that you will not be able to exceed with regard to obtaining a mortgage. Remember that co-ops are stricter than banks here in NYC and that their financial requirements vary from building to building. 

If a co-op purchase is in your future, be sure to work with an experienced agent who is familiar with those requirements. 

Until then, happy hunting—and keep those debt-to-income ratios as low as possible! 

Brad Malow is the Founder of BuyingNYC.com and an agent with Rutenberg Realty. He has been helping buyers and sellers navigate NYC’s complex real estate market for over 10 years.