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Understanding Debt-to-Income Ratio
Your debt-to-income (DTI) ratio compares monthly debt payments to gross monthly income — a key metric lenders use, and a useful personal gauge of financial health.
How to Calculate DTI
Divide your total monthly debt payments (excluding regular living expenses like groceries) by your gross monthly income, then multiply by 100 to get a percentage.
Common DTI Benchmarks
| DTI Ratio | General Assessment |
|---|---|
| Under 36% | Generally considered healthy |
| 36-43% | Manageable but limits some loan approvals |
| Above 43% | Often considered high, can limit mortgage approval |
DTI Matters Significantly for Mortgage Approval
Mortgage lenders typically have specific DTI thresholds (often around 43%) — understanding your DTI before applying helps set realistic expectations for loan approval and terms.
Common Mistakes
Not calculating DTI before applying for a major loan like a mortgage, leading to unexpected denial or less favorable terms than anticipated.
Frequently Asked Questions
Under 36% is generally considered healthy, while ratios above 43% can limit mortgage approval and other loan options at some lenders.
Yes — housing costs (rent or mortgage payment) are typically included in DTI calculations alongside other debt obligations like car loans and credit cards.