What is the Allowable Debt Ratio for Mortgages?

Debt ratio is a key tool for banks to use when deciding if they should issue a mortgage. A debt ratio is the amount of your income that is going towards debt. If you make $4,000 a month and your debt is currently at $1,000 a month then your debt ratio is 25%. The absolute maximum debt ratio one can have is 38% and if your debt ratio is that high that is not good. No bank will touch you with a debt ratio that high, they will not even consider it. A 20% debt ratio is more reasonable but is still considered high and you will have a harder time getting a mortgage. Banks consider a reasonable debt ratio to be in the 16-19% range. The debt ratio relates directly to how big of a mortgage you can have. If you make $4,000 a month with 25% debt ratio ($1,000 in debt a month) then a bank will only allow you up to $520 a month in mortgage payments since that would equal a 38% debt ratio. If you are making $4,000 a month and only have $500 dollars in debt (12.5% debt) then the bank will allow you to take out a mortgage up to $1,020 (25.5%). A debt ratio ties directly into how much of a mortgage you can take out. If your debt ratio currently is very high it is a smart idea to try and reduce your debt before you try and get a mortgage payment. However you can always increase the size for your down payment which will lower the mortgage debt all together. However the more debt you have the less likely you are going to be able to make a down payment with. The best idea is to wait until your debt ratio is between 16%-19% before you decide to get a mortgage.