How High Income to Debt Ratio Leads to Foreclosure

A high income to debt ratio leads to foreclosures. This is because people who have a high income to debt ratio are usually spending more money than they make. If you are spending more money than you make then chances are you are also deep in debt. People who are deep in debt usually rely on their credit cards to pay their bills.

Many people are facing foreclosure because they have adjustable rate mortgages. In an adjustable rate mortgage, your mortgage rate is not locked in so it can be changed at any time. Many homeowners got themselves in over their heads because they took on mortgages that they could barely afford; now their mortgage payments have increased and they cannot make the payments.

If these homeowners had a lower income to debt ratio then they would be able to afford their current mortgage payments. Most homeowners did not save a lot of money in case their mortgage payments increased. Many homeowners thought that the value of their homes would increase but that has not been the case recently; in fact many homes have depreciated in value. This means that their homes are worth less than they are currently mortgaged for. You cannot take out an equity line of credit if your home is worth less than you paid for it.

The economy will continue to have its ups and downs; homeowners need to prepare for the worst so that they do not face foreclosure in the future. You should always take out a mortgage that has monthly payments that are lower than what you budgeted for; this helps to ensure that you can comfortably make your mortgage payments. You should also have at least four months of mortgage payments in the bank so that in case of an emergency you can still make your mortgage payments. Conservatively, your debt to income ration should be less than 38%. This means the monthly payment of your mortgage ( Principal, Interest, Taxes and Insurance - PITI ) plus your existing monthly debt ( like cars, furniture,student loan etc ) should be 38% of your gross monthly salary. For further understanding of loan qualification, go to

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By Feseha George