What It Means
Debt-to-income ratio (DTI) measures your monthly debt payments as a percentage of your gross monthly income. To calculate it, divide your total monthly debt payments (credit cards, loans, mortgage) by your gross monthly income. For example, if you pay $2,000 per month in debts and earn $6,000, your DTI is 33%. Lenders use DTI as a key factor in loan approvals, especially for mortgages. Most lenders prefer a DTI below 36%, though some mortgage programs allow up to 43% or even 50%. Unlike credit utilization, DTI does not directly factor into your credit score, but it significantly affects your ability to get approved for new credit.
Frequently Asked Questions
What is a good debt-to-income ratio?
A DTI below 36% is generally considered good. Below 28% is excellent. For mortgage qualification, most conventional lenders cap at 43%, though some programs allow higher.
Does DTI affect your credit score?
No, DTI is not a factor in credit score calculations. However, lenders consider it separately when making lending decisions, alongside your credit score.