Understanding Debt-to-Income Ratio and Why It Matters

Understanding Debt-to-Income Ratio

Debt-to-income ratio (DTI) is calculated by dividing total monthly debt payments by gross monthly income. Lenders use DTI to assess your ability to manage new debt. A ratio below 36% is generally considered healthy. Calculate by adding all monthly debt obligations and dividing by gross monthly income. Improve DTI by paying down debt or increasing income. Mortgage lenders typically require DTI below 43-50%. A high DTI limits borrowing power and increases interest rates.