Debt-to-Income Ratio (DTI)
Definition
Your monthly debt payments divided by your gross monthly income. If you earn $5,000 monthly and pay $1,000 toward debts, your DTI is 20%. Lenders use this to decide if they'll loan you money — lower is better. Most want to see under 36-43% DTI.
Why It Matters
Your DTI directly impacts whether you can get approved for loans and what rates you'll get. Before applying for a mortgage, know your DTI. If it's too high, paying down debt or increasing income can improve your borrowing power.
Example
You earn $6,000/month gross. You pay: $1,200 mortgage, $300 car loan, $100 student loans, $150 credit card minimum = $1,750 total. DTI: $1,750 ÷ $6,000 = 29%. This is good — most lenders want under 36-43%.