What is a debt-to-income ratio and how do I calculate it?

What is a debt-to-income ratio and how do I calculate it?

The debt-to-income (DTI) ratio is a financial measure that compares your total monthly debt payments to your gross monthly income. To calculate it, divide your total monthly debt payments by your gross monthly income and multiply by 100 to get a percentage.

What debts should I include in the calculation?

You should include all recurring monthly debts such as mortgage or rent payments, car loans, credit card payments, student loans, and any other personal loans.

What is considered a good DTI ratio?

Generally, a DTI ratio below 36% is considered good, with no more than 28% of that going towards housing expenses. However, lenders may have different criteria.

Can I improve my DTI ratio?

Yes, you can improve your DTI ratio by increasing your income, paying down existing debts, or avoiding new debt.

Is there a DTI ratio that can prevent me from getting a loan?

Yes, if your DTI ratio is too high, lenders may view you as a higher risk and could deny your loan application.