What is ideal debt to income ratio for home loan?

Here’s a detailed explanation for income to debt ratio for home loan. The DTI ratio is calculated by dividing the borrower’s total monthly debt payments by their gross monthly income.

DTI Ratio=Total Monthly Debt Payments/Gross Monthly Income×100 

Let’s understand the debt to income ratio for house loan with an example.

For instance, if a person has a gross monthly income of Rs1,00,000 and total monthly debt payments (including the proposed home loan EMI) of Rs40,000, their DTI ratio would be 40%.

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Financial experts often recommend that borrowers keep their DTI ratio below 30-35%. This range is considered safe and indicates that the borrower has a balanced approach to debt and income, ensuring they can comfortably manage their loan repayments alongside other expenses.

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Many Indian banks and financial institutions may consider a DTI ratio up to 40% for home loans, especially if the borrower has a stable income and good credit history. This slightly higher range can still be acceptable but suggests the borrower is taking on more debt relative to their income.

Factors Influencing House Loan Debt to Income Ratio Acceptance:

• Income Stability: Lenders prefer borrowers with stable and predictable income sources.

• Credit Score: A higher credit score can allow for a slightly higher DTI ratio since it reflects better creditworthiness.

• Loan Type and Tenure: Longer loan tenures can lower the monthly EMI, improving the DTI ratio.

Maintaining a low DTI ratio not only improves the chances of loan approval but also ensures that borrowers do not overstretch their finances. It helps in maintaining financial stability and reduces the risk of default. This is all about income to debt ratio for home loan.

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The debt to income (DTI) ratio is obtained by dividing your net monthly income by your net monthly debt payments, such as your minimum credit card payments, car payments, and student loans. Mortgage lenders use the DTI ratio to evaluate the creditworthiness of borrowers. Now, let’s find out what is ideal debt to income ratio for home loan and how to calculate it:

In India, the debt to income ratio of 40% is the highest that a borrower can have and can still get a new loan. Lenders mostly prefer an applicant with a much less DTI ratio.

Let’s assume the yearly income of Rahul is 18 lakhs and he wants to borrow a loan. He also has an ongoing EMI of Rs. 20000 towards car loan and Rs. 50,000 towards a home loan.

Rahul’s DTI Ratio will be:

His Monthly Income = 18,00,000 divided by 12 months = Rs. 150000

His Monthly Debt obligation = 20000 + 50000 = Rs. 70000

His DTI Ratio = (70000/150000)x100 = 46.67%.

This will be considered to be a bit high by most lenders.

Once Rahul pays off his car loan, his DTI ratio will become (150000/50000)x100 = 33.33% which is an acceptable value.

1. A decrease in your existing monthly payments

2. An increase in your salary