What gets included in debt-to-income ratios?

Lenders use Debt-to-Income Ratios to help determine who will and won't qualify for a mortgage.

It's also a determining factor in the interest rate you?ll pay. The lower your debt-to-income ratio, the better your interest rate will be.

When calculating debt-to-income, lenders add up all the borrower's monthly payments. They include auto loans, credit cards, student loan payments, and the loan that's being applied for. That amount is then divided by the borrower's monthly income, and the debt-to-income is expressed as a percentage. Most lenders prefer a debt-to-income ratio of 40% or less. Sub-prime lenders are often willing to work with borrowers who have ratios as high as 60 percent, but the borrower will pay a higher interest rate.

We suggest that you calculate your debt-to-income ratio before you start shopping for a mortgage lender. It's also good to know your credit score. The more pro-active you are, the better you'll look to potential lenders.