One of the first things to look at prior to shopping around for a good mortgage rate is your debt to income ratio. The first thing a lender is going to look at is your ability to handle the potential debt of a home loan, followed by your credit score. If your debt is too high and you income too low you will not be approved for the loan.

Debt to income is a very simple calculation and is derived from the amount you pay out to bills each month versus the amount of your take home salary. Lenders will calculate this ratio in order to determine whether or not you will be financially able to handle the added debt of a mortgage.

Calculating the ratio: Divide your gross monthly or take home salary by the total amount of your bills, including: any and all credit cards, car payment, any form of insurance and other loans (such as student loans, lines of credit etc). Leave out utilities and miscellaneous expenses such as food and entertainment.

If your ratio is falls under the 35% mark, then you’re doing great and shouldn’t have a hard time being approved for your mortgage. If however your debt ratio is above 35%, it may be become difficult to be approved for the loan and be prepared to pay a higher interest rate if you are approved.

If you can, it is preferable to keep your total housing expense under 28 percent of monthly gross income. Keep in mind, the lower your debt-to-income ratio the better, so pay down as much debt as you can before starting the mortgage process. Once you have a good idea of what you can afford and where you want to buy, check out current mortgage rates and contact Edmonton’s number one Realtor below.

Here is a simple break down of the debt to income formula: *Minimum monthly credit card payments: + Monthly car loan payments: + Other monthly debt payments: + Expected mortgage payments: *Total = *Your debt-to-income ratio is: *Your total by your monthly gross income =

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