How to Calculate Investment Property Into Debt to Income Ratios

by Charlotte Johnson

If you own want to finance an investment property, your income must be offset your mortgage payments. One primary method of analyzing lending eligibility for an investment property is through a debt-to-income ratio. Determine your debt-to-income ratio by performing a series of basic mathematical calculations. These calculations will show your current debt-to-income ratio as well as your projected debt-to-income ratio if the property is purchased.

Current Ratio

1. Add all sources of debt for which you are required to make monthly payments, including personal mortgage, vehicle payments, student loans and minimum credit card payments.

2. Add your total monthly income, including salary, wages, tips, bonuses, commission, alimony and child support payments.

3. Divide your monthly debt by your monthly income to find your debt to income ratio. For example, assume you have $3,000 in monthly debt and $6,500 in monthly income. Divide 3,000 by 6,500 to get 0.46.

4. Convert your ratio to a percentage by multiplying the decimal times 100. In this example, you would change 0.46 to 46 percent as your debt to income ratio.

Projected Ratio

1. Compute your monthly debt and income as you would with current debt to ratio calculations.

2. Add the estimated monthly payment that you would be making on the investment property to the debt category.

3. Add any estimated monthly revenue that you expect to receive from the investment property to the income category.

4. Divide the debt by the income to find the ratio. For example, assume that your previous monthly debt was $3,000 and your future investment mortgage payment would be $800 per month. Add 800 to 3,000 to get $3,800 projected monthly debt. Assume that you would expect to receive $1,000 in rent per month from the property, and add this figure to your previous total of $6,500 to get $7,500 as your monthly income. Divide 3,800 by 7,500 to get 0.51, which converts to 51 percent debt-to-income ratio.

Items you will need

  • Calculator

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