Debt & Credit

Debt-to-Income Ratio (DTI)

Percentage of gross monthly income that goes toward debt payments.

Also known as: debt to income ratio, dti, debt ratio

What You Need to Know

Your debt-to-income ratio (DTI) measures how much of your monthly income is consumed by debt payments. It's calculated by dividing your total monthly debt payments by your gross monthly income.

DTI Calculation: DTI = (Monthly Debt Payments ÷ Gross Monthly Income) × 100

Example: If you earn $5,000/month and pay $1,500 in debt (mortgage, car, credit cards), your DTI is 30%.

DTI Guidelines:

Under 20%: Excellent
lots of financial flexibility
20-30%: Good
manageable debt load
30-40%: Caution
approaching risky territory
Over 40%: High risk
difficult to qualify for new loans

Why It Matters: Lenders use DTI to assess your ability to handle additional debt. Most mortgage lenders prefer DTI under 36%, with no more than 28% going to housing costs.

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/

Put your knowledge into action with these interactive tools:

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Amortization

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