Debt-to-Income Ratio (DTI)
The percentage of your gross monthly income that goes toward debt payments
What You Need to Know
DTI is calculated by dividing total monthly debt payments by gross monthly income. Lenders use this ratio to assess loan eligibility. A DTI below 36% is generally considered healthy, while above 43% may limit borrowing options. It's a key metric for financial health and loan qualification.
How to Calculate: DTI = (Monthly Debt Payments ÷ Gross Monthly Income) × 100
Example:
- Monthly debt payments: $1,200
- Gross monthly income: $5,000
- DTI = (1,200 ÷ 5,000) × 100 = 24%
DTI Guidelines:
- Excellent: Under 20%
- Good: 20-36%
- Caution: 36-43%
- High Risk: Over 43%
What Counts as Debt:
- Mortgage/rent payments
- Auto loans
- Credit card minimums
- Student loans
- Personal loans
- Alimony/child support
Improving Your DTI:
- Pay down existing debt
- Increase income
- Avoid new debt
- Refinance high-rate loans
Sources & References
This information is sourced from authoritative government and academic institutions:
- consumerfinance.gov
https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-en-1791/
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