Ideal Debt to Income Ratio

The ideal debt-to-income ratio is one that doesn't leave you strapped for cash. The ratio is a comparison of the amount of debt you have in relation to your overall income. Another common ratio compares income with mortgage expenses.The financial industry has established what it considers to be acceptable debt-to-income ratios, but they often don't account for some common expenses.

Total Ratio

Your total debt-to-income ratio reveals the percentage of your pretax income that would go toward paying a mortgage, auto loan, credit-card bills and other recurring debts. The Bankrate and Realty Times websites report that financial professionals generally recommend that consumers' total monthly debt payments not exceed 36 percent of their monthly pretax income. You can calculate your debt-to-income ratio by dividing the total amount of your recurring monthly debts by your monthly pretax income and multiplying the resulting number by 100.

Mortgage Ratio

Mortgage lenders consider the percentage of a borrower's pretax income that would go toward a home-loan payment each month by calculating the housing-expense ratio. The ratio is calculated by dividing the total monthly mortgage payment by the borrower's monthly pretax income and multiplying the resulting number by 100. Bankrate reports lenders often don't grant loans if the borrowers' housing-expense ratio exceeds 28 percent of their monthly income before taxes are deducted. That percentage includes the principal mortgage payment, interest, real estate taxes and homeowners insurance.

FHA

The U.S. Federal Housing Administration (FHA) often accepts higher debt-to-income ratios for home buyers seeking FHA loans. The agency allows a maximum housing-expense ratio of 29 percent. Like other lenders, the FHA calculates a borrower's total debt-to-income ratio by including all recurring monthly debt a borrower must pay, such as credit-card debts and car loans. However, the maximum total debt-to-income ratio a borrower can have to qualify for an FHA loan is 41 percent.

Considerations

For practical purposes, consumers should consider all their monthly expenses, not just the ones used to determine an acceptable debt-to-income ratio. People can easily end up with unaffordable loans if they don't add common expenses to their monthly debt obligations. Standard ratios don't take the cost of childcare, groceries, utilities and other expenses into account. Lenders are focused on whether you can pay back a mortgage or other loan, but you must determine whether you can handle all your regular monthly expenses along with an additional loan payment.