Your three-digit FICO ® credit score is a key number when applying for a mortgage. If that score is too low, lenders will hesitate to approve you for a mortgage. But did you know that your total debt service is another important financial factor that will determine whether you qualify for a mortgage?
Let’s talk about what total debt service is in real estate and how to calculate it.
Your total debt service is the amount of money you need to fully repay your debt during a certain period of time. You can calculate your total debt service for a month, a year or any other time frame. It measures the percentage of your gross annual income – your yearly income before taxes are taken out – that you need to make your loan payments and cover your other yearly debts. It’s similar to your debt-to-income ratio (DTI) in that it analyzes how much of your income is consumed each month, or year, by your debt obligations.
A higher amount of debt means you’ll have to spend a greater percentage of your gross annual income on paying it off. If you want to borrow money, it’s best to have a lower total debt service. This will make lenders feel more confident you can afford to pay your new monthly loan payment.
Debt service definition: Your total debt service is the amount of money you need to fully repay your debt during a certain period of time. You can calculate your total debt service for a month, a year or any other period. Your total debt service should be enough to cover both the principal payments and interest payments of your loans and other debt obligations.