Q:

What is a good debt-to-total-assets ratio?

A:

Quick Answer

In calculating a person's eligibility for a mortgage, which is one of the most common reasons for calculating a personal debt-to-income ratio, lenders prefer to see a number lower than 28 percent on the back end and under 36 percent on the front end. About.com defines those terms as being your total debt ratio before and after housing costs are factored in to the equation.

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Full Answer

About.com describes the method for calculating your debt-to-income ratio. Simply gather together and add up all of your monthly bills. If you have quarterly or annual debts, average them out over 12 months and add them to your monthly payments. Once you have that number, the total amount you have to pay out in a month, divide it by your total monthly income, again with quarterly or annual bonuses factored in to the number. The resulting number is your debt-to-income ratio.

Lenders look at two numbers when assessing your creditworthiness. The first, according to About.com, is the pre-housing cost of living, called the "back end." This number should be less than 28 percent. The "front end" is your overall ratio once housing costs are included. Ideally, this is less than 36 percent of your month-over-month income, indicating that you are fundamentally solvent and can afford to take on the obligation of a mortgage.

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