DTI (Debt-to-Income Ratio)

Definition

DTI divides your total monthly debt payments by your gross monthly income. It shows lenders what fraction of your paycheck is already committed to debt. Most lenders won't approve mortgages if your DTI exceeds 43%, and they consider DTI under 36% very safe. Your DTI includes mortgages, car loans, student loans, credit cards, and other regular debt payments.

Why it matters

DTI is how lenders judge whether you can afford to borrow more. Someone earning $5,000 monthly with $1,500 in debt payments has a 30% DTI and can probably get approved for a mortgage. Someone earning the same with $2,500 in debt payments has a 50% DTI and will likely be rejected, even if both have perfect credit. Paying down debt improves DTI faster than earning more money, making it the best move before applying for major loans.

Quick example

You earn $6,000 gross monthly. You pay $500 for a car loan, $200 for student loans, and $400 minimum on credit cards. Your DTI is $1,100 divided by $6,000, which equals 18.3%. That's excellent. You could likely borrow up to another $1,500 per month before hitting 43% DTI, which is the typical mortgage limit.

The bottom line

Knowing what DTI (Debt-to-Income Ratio) means helps you make better day-to-day money decisions. It makes rates, account options, and tradeoffs easier to compare.