What is Debt-to-Income Ratio (DTI)?

The Simple Definition

Your Debt-to-Income Ratio (DTI) is a percentage that compares how much money you owe every month to how much money you earn every month.

It is the primary metric that banks and mortgage lenders use to decide if you can afford to take on a new loan. If your DTI is too high, it means you already have too much debt compared to your income, and the bank will deny your application.

How to Calculate Your DTI

Step 1: Add up all your monthly debt payments. This includes your mortgage or rent, car loan, student loan, and minimum credit card payments. (Do NOT include living expenses like groceries or utilities).

Step 2: Divide that number by your Gross Monthly Income (your income before taxes are taken out).

Step 3: Multiply by 100 to get a percentage.

Example: You pay $1,500 for rent, $300 for a car, and $200 for student loans. Your total monthly debt is $2,000. Your gross income is $6,000 a month. Your DTI is 33% ($2,000 ÷ $6,000).

What is a "Good" DTI?

• Below 36%: Excellent. Lenders view you as very low risk. You will qualify for the best interest rates.
• 36% to 43%: Good. You can still get approved for most mortgages, but you are approaching the upper limit.
• Above 43%: Warning Zone. 43% is the absolute maximum DTI allowed for a "Qualified Mortgage." Most lenders will deny your application if your DTI is over this limit.